Changes to Provisional Cannabis Licenses Passed By CA Legislature

On Thursday, the California Legislature passed Assembly Bill 97 in an attempt to avoid further disruption to the issuance of Annual Commercial Cannabis Licenses. The Governor is expected to sign the bill into law, and if signed would go into effect immediately.

This year thousands of commercial cannabis licenses were due to have their state-issued Temporary Licenses expire pursuant to a provision under the Medicinal and Adult-Use Cannabis Regulation Safety Act (MAUCRSA). That provision, prohibited state licensing agencies from issuing additional Temporary Licenses after December 31, 2018.  Under MAUCRSA, Temporary Licenses were only valid for 120 days.  Last year, the State passed Senate Bill 1459 in an attempt to extend Temporary Licenses for an additional 90 days.

However, AB-97 attempts to go further. If signed into law, AB-97 would allow any qualified applicant to obtain a Provisional License upon submittal of a completed Annual License Application. The Provisional Licenses would be valid for 12 months from the date of issuance, or until the applicable state licensing agency issues the annual license.

The licensing authorities will also have full authority to renew, revoke, or suspend Provisional Licenses.

The Bill also establishes a $30,000 administrative fine per violation to unlicensed operators in violation of the laws and regulations, and up to $5,000 per violation to a licensed operator. Any of the state licensing authorities may impose these fines - the Bureau of Cannabis Control, the California Department of Food and Agriculture (CalCannabis Division), or the California Department of Public Health (Manufactured Cannabis Safety Branch).

Worker Classification Landscape Altered Again

The Ninth Circuit has issued a crushing blow to employers and companies when it decided that recent restrictions on independent contractors would apply retroactively. On May 2, 2019, the Ninth Circuit in Vazquez v. Jan-Pro Franchising International, Inc. decided that the ruling in Dynamex Operations West, Inc. v. Superior Court should be applied retroactively. The Dynamex decision made it more difficult for a California employer to classify a worker as an independent contractor unless it met a strict "ABC test." Employers are required to prove that a worker is (A) free from the control and direction of the company in connection with the performance of the work, both under the contract and in fact, (B) the worker performs work that is outside the usual course of the company's business, and (C) the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the company.

After Dynamex, the California Court of Appeals clarified in Garcia v. Border Transportation Group that the ABC test only applies to wage issues and should not be applied to non-wage disputes.

This Ninth Circuit opinion will undoubtedly create a wave of major and potentially devastating implications for California employers that utilize independent contractors, especially gig economy companies with business models built around a more flexible prior standard. While the 9th Circuit opinion is instructive, it remains to be seen whether the California Supreme Court will also find that the Dynamex opinion is retroactive. However, in an attempt to further solidify the application of this stricter test for California workers, the California legislature is trying to codify the Dynamex decision into law. Although the bill would exempt certain occupations, gig economy workers are not currently among those included in the exemptions. As the bill moves through the Legislature, the list of exempted occupations could grow.

Given the current state of retroactive application, employers should re-visit existing independent contractor agreements to verify that they, in fact, conform to the restrictions in Dynamex. Consult with legal counsel to discuss current worker classifications under the new ABC test and understand the risks and exposures that you may face for past worker classifications in light of this retroactive application.

What Whistleblower Laws Mean for Your Small Business

If you run a small business, chances are you have not spent much time thinking about whistleblowers and whistleblower protection.  Many high-profile whistleblower cases involve sounding the alarm on fraud and government contracts, but government contractors are not the only ones who need to understand whistleblower laws.  Virtually any employee "who blows the whistle" on unlawful activity is entitled to protections.  There are a number of state and federal whistleblower protection laws, but OSHA oversees a large swath of these protections.

What Whistleblower Laws does OSHA Enforce?

OSHA's mandate is broad.  OSHA will oversee whistleblower claims relating to workplace safety or health, asbestos in schools, cargo containers, airline, commercial motor carrier, consumer product, environmental, financial reform, food safety, health insurance reform, motor vehicle safety, nuclear, pipeline, public transportation agency, railroad, maritime, motor vehicle safety, and securities laws.  Chances are, if you are running any kind of business, OSHA is going to have some oversight involving whistleblower protection.

When Does OSHA Get Involved?

All Whistleblower laws try to prevent retaliation against an employee for engaging in a protected activity.  An employee is engaging in a protected activity if they report violations of the law to any person or state or local government.  An employer retaliates by undertaking any kind of adverse unfavorable personnel action including termination, demotion, denying overtime or promotion, discipline, reducing pay or hours, and suspension.  An employee who is retaliated against may file a complaint with OSHA which triggers an investigation.

How to protect against retaliation claims

Once an employee has complained, a business needs to proceed cautiously.  The employee can still be disciplined for conduct not related to the whistleblowing, but any kind of discipline is probably going to be construed as retaliation.

Every business should create a whistleblower policy and then follow it meticulously.  Components of this policy might include:

  • Have a complaint system and investigate complaints thoroughly.  You want to promote a culture of openness.  This includes having a complaint system that protects both the person coming forward with the complaint and the target of the complaint.  Even if you discover that another employee is not complying with legal requirements, chances are they are making innocent mistakes that can be corrected early.

  • Document, document, document.  Every step of the investigation needs to be documented.  Employee statements should be written down.  The dates and outcomes of any steps of the investigation could be recorded. Records are key in making sure the investigation is fair and proving that later.  Your employee is probably keeping a real-time journal, you need to do the same.

  • Proceed cautiously with discipline.  Any discipline is going to be perceived as retaliatory.  If you must discipline the employee for other conduct, make sure best efforts are made to explain the reasons for the disciplinary action to the employee.  Again, document those reasons clearly and thoroughly.

More Seizures Against Unlicensed Operators

Continued enforcement actions occurred yesterday against two separate unlicensed cannabis businesses in Sacramento, Davis and Los Angeles. Police in Davis assisted the Department of Consumer Affairs’ Division of Investigation – Cannabis Enforcement Unit to serve search warrants on an unlicensed cannabis delivery service with locations in Sacramento and Davis. Over $850,000 in cannabis products was seized as a result.

Meanwhile, the Los Angeles Sherriff’s Department also assisted in serving a search warrant on an unlicensed cannabis retailer in Los Angeles. This resulted in the seizure of nearly $440,000 in cannabis products.

Continuing to operate unlicensed is simply not worth it. Get assistance if you need it and get licensed.

Another Unlicensed Enforcement: Is it Worth the Risk?

Months ago, we reported on recent enforcements on two unlicensed cannabis businesses in Sacramento and Costa Mesa. Now, we have learned of another enforcement action against an unlicensed cannabis retailer operator in Los Angeles.

On October 25, 2018, the Bureau of Cannabis Control (Bureau) and the Department of Consumer Affairs’ Division of Investigation-Cannabis Enforcement Unit (DOI-CEU), in coordination with the Los Angeles Police Department (LAPD) served a search warrant on an unlicensed cannabis retail location. The City of Los Angeles confirmed that the location had not applied for a local license. As a result of the search warrant, over $2,000,000 of cannabis and cannabis products were seized, including nearly 500 pounds of cannabis flower, over 430 gross pounds of concentrates, and over 200 gross pounds of edibles.

Not only do unlicensed businesses need to worry about the seizure of product, but they also need to be concerned with criminal charges. The owner of the retail location, as well as six employees, were all arrested on misdemeanor charges for operating a commercial cannabis business without a license. This particular investigation was conducted at the request of the Bureau based upon a complaint received.

As we are coming to the end of the first year of legalization and licensing, unlicensed cannabis businesses are going to have fewer excuses to provide the Bureau, and the District Attorney's Office, if they find themselves under investigation.

BOTTOM LINE: If you don't have your license yet, start the process now. If you don't know what you need to do, seek legal advice and assistance. It's just not worth the risk.

No Lines, No Problem: Cashier-less Stores vs. Traditional Retail

Amazon opened another Go store in San Francisco, its third city after opening locations in Chicago and Seattle. Scan your Amazon account on the Amazon Go app to enter, pick what you want off the shelves and walk out. Cameras and sensors track customers throughout the store and other technology monitors when you take items off shelves (or put them back). Your digital receipt will charge you for items that you have taken off the shelves. No cashiers, no lines, no problem.

With three stores in Seattle, two in Chicago with another two opening soon, one in San Francisco and another opening months from now, Amazon looks primed (pun intended) to start expanding its brick-and-mortar operation. Another store is planned for New York City as well.

The goal is convenience and speed and it looks like this cashier-less store may have a leg up on traditional retail locations. Customers no longer have to wait in lines and waste their lunch hour trying to purchase quick on-the-go food. This model may be convenient for consumers, it is also clearly benefits the retailer. While the up-front costs would likely be costly, this technology could help cut costs long-term by eliminating traditional overhead costs including cashiers, credit card processing and the like. This technology also helps retailers understand their consumers better to identify inventory. While it is unlikely that these automated stores will take over the retail industry across the country, it certainly could be the new normal in certain urban areas where "life by app" is the norm.

Navigating Real Estate Waters in a Cannabis World

With the legalization of cannabis in California, cannabis businesses will need to address their real estate needs.  As not many businesses can afford to buy a building outright, leases will need to be negotiated and executed. However, cannabis related real estate leases will need to be handled more carefully than a normal commercial lease.

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Landlords and Medical Marijuana in California

In 1966, California voters decriminalized the medical use of marijuana by approving the California Compassionate Use Act. In 2015, the voters approved the Medical Cannabis Regulation and Safety Act ("MCRSA"), to regulate the medical marijuana industry. In 2016, California voters approved the Adult Use of Marijuana Act ("AUMA"), allowing (1) individual adults to possess, use, purchase, transport, or give away up to 28.5 grams of marijuana or 8 grams of concentrated marijuana; (2) them to grow up to 6 plants and possess the marijuana produced by the plants; and, (3) legally possess marijuana accessories.

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Lions and Tigers and Bears, Oh My!

Support Animals in the Workplace

California employers are familiar with service dogs as a reasonable accommodation for employees and applicants with disabilities. But, what about “support” animals?  In 2013, the California Fair Employment and Housing Act (“FEHA”) required California employers to allow “assistive animals” in the workplace as a reasonable accommodation. Assistive animals include service dogs, but also support animals that provide “emotional or other support to a person with a disability, including but not limited to, traumatic brain injuries or mental disabilities, such as major depression.” 

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Realities of Subrogation Litigation

Introduction

Subrogation litigation is a very broad topic that encompasses many different practice areas. It is ultimately however a practice specialty unto itself. It includes innate complexities of subrogation law, but also requires the skills of a Plaintiff’s attorney, and the knowledge of a specialist practicing in niche areas. These areas can range from fire litigation to workers’ compensation law. Complete mastery of subrogation requires the attorney to wear many hats, and requires the client seeking recoupment of their money to understand this dynamic.

Subrogation Basics

At its core, subrogation arises when a party who was obligated to a pay another party seeks recovery against a third party who may have committed an act giving rise to liability. A simple example is that of an insurance company who pays upon a homeowner’s policy to a homeowner after a fire. If the insurer determines that the fire may have been caused by a negligent electrician, the insurer may seek to “stand in the shoes” of the homeowner and pursue litigation directly against the electrician. The insurer often maintains this right by contract with the homeowner through the insurance policy, or it may independently seek an assignment of rights from the homeowner. In certain areas, such as workers’ compensation, the right of the insurer to proceed is authorized by statute.

A right to subrogation also exists in a non-insurer-insured situation. For instance, in lieu of suing a subcontractor for contractual breach over construction delays, a construction company may allow the breach, but then seek rights from the subcontractor to pursue one of its vendors who caused the breach by delaying needed materials.

Subrogation Pitfalls and Promises

Subrogation litigation can be a complex area. The attorney pursuing subrogation must be well versed in Plaintiff’s litigation, subrogation law and practice, as well as the area of law upon which they sue. As noted in the illustrations above, this could mean that the attorney must be knowledgeable of the intricacies of law ranging from fire litigation, workers’ compensation law, and construction law, to name a few. But even with knowledge of a specialty field, a key mistake that is often made by attorneys is a failure to understand the practicalities of subrogation as it relates to both liability and damages. While the legal theories of recovery may be the same, the practicality of subrogation differs very much from a typical Plaintiff’s case. This reality of subrogation law can often trump a “good case”.

In typical Plaintiff’s litigation, there is a maxim that a weaker liability case can be helped by a strong damages component. Unfortunately, this does not always hold true for subrogation. In typical litigation, the Plaintiff is asserting their own personal rights which a juror may relate to. In subrogation, the party bringing the case is generally a corporation or insurer who lacks broad appeal to a jury. In this sense, a weaker liability case which may ordinarily be softened by a sympathetic Plaintiff is removed or too distant. Further, in subrogation, there is often a bar to recovery of general damages or pain and suffering that an ordinary Plaintiff might be afforded. This sliding scale of general damages can vary a great deal and brings uncertainty to a defending party which can result in productive settlement negotiations. But with subrogation, you are generally left trying to recover upon what was paid out of pocket. Practically speaking, a personal injury Plaintiff could recover only a nominal sum for out of pocket damages yet a large sum in general damages. This is not true for a subrogating Plaintiff.

Another difficulty arises in whether the attorney retained to pursue subrogation is being compensated hourly or by contingency. Because subrogation litigation can sometimes be long, difficult, and technical, it can sometimes be difficult to find attorneys or firms willing to proceed with this work on a contingency basis. This holds especially true when one considers the reality of expert witnesses needed for difficult cases.

Defense attorneys fighting against subrogation claims also carry a bias. Unfortunately, subrogation claims are viewed as weaker (for reasons explained above). Even if damages are very high, attorneys and defendants often do not feel that they are required to pay near the full amount because the subrogating party should be willing to greatly discount their recovery. This problem stems not from laws supporting subrogation, but rather from history and the psychology of a weakened unsympathetic corporate Plaintiff.

Even with its pitfalls, subrogation’s weakness can also be its strength. The out-of-pocket expenditures made by a subrogating Plaintiff represent hard costs that can be boarded at trial. Depending upon the case, this can mean that if liability is proven, a near 100% recovery of damages can occur if the payments were reasonable and necessary (dependent upon the jurisdiction).

When is Subrogation Appropriate?

This can be a difficult question to answer because it requires a thorough assessment of subrogation practicalities, cost, liability and damages, as well as assessment of the area of law upon which a subrogating party is basing its claim upon. If all the pieces fit together, subrogation can be a powerful tool. Subrogation litigation benefits everyone, as it often results in companies or insurers paying upon claims quickly if they know they can recoup such payments from an at-fault third party. If you are pursuing subrogation, it is vital that you retain experienced and knowledgeable attorneys.

With offices in California and Nevada, Murchison & Cumming, LLP has several attorneys who have experience with subrogation litigation if you need further guidance.

Beer Law: The Distribution Problem For Craft Brewers In Nevada

For Nevada brewers, the largest obstacle to profiting from their product is the frustrating inability to distribute it without the help of a commercial distributor. This frustration is compounded by the fact that it is counter-intuitive to the nature of brewing which often times can be a labor intensive and a grass-roots process. Many brewers would be more than willing to load up their trucks with kegs and sell the product themselves, but simply cannot in light of current Nevada law. Obtaining rights to a commercial distributor is not an easy answer either. It is a costly and often times nearly insurmountable task for a microbrewery, except for those already in the game. The irony is that many of the major craft beer producers today who use commercial distributors attained the ability to do so only because they were successful as self-distributors very early on. Despite the current self-distribution legal stranglehold in Nevada, there are some solutions.
 
Nevada’s law against self-distribution is only one sentence long, and is codified as Nev. Rev. Stat. Ann. § 369.382:

Except as otherwise provided in NRS 369.386 and 369.415, a supplier shall not engage in the business of importing, wholesaling or retailing alcoholic beverages in this State.

For purposes of this statute, a brewer who makes beer in Nevada is considered a “supplier”. A supplier cannot sell beer unless they have an agreement for distribution with a state-licensed distributor (369.386 and 369.415). As one might imagine, a distributor holds the power, and obtaining the rights to use them can be a cost-prohibitive endeavor. Most mircobreweries likely do not have the production volume or expenses to compete in a market dominated by the large breweries in this country. In short, this means good luck getting your beer on your local grocer’s shelf space.
 
The above prohibition raises an obvious question, can Nevada brewers sell their product to the public in a cost-effective manner without the use of a commercial distributor? The answer is yes, and effectively so. In fact, the manner in which sale of craft beer is permitted in Nevada is ideally suited to the craft beer consumer and current trends. If you would like further information on how to legally retail beer in Nevada, or need legal counseling on starting or running your brewery, our attorneys can help.

Quenching Nevada’s Thirst for Beer: Checklist for Starting a Nevada Brewery

For many, turning their passion into a business comes with equal parts excitement and trepidation.  When it comes time to turn that passion into profit, that initial enthusiasm can be quickly tempered by legal and regulatory hurdles.  Those who have turned their home-breweries into commercial breweries know this pain particularly well. Nevada presents unique challenges to this process in part due to laws that have not kept up with the emerging craft brew industry.

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Medical Marijuana and the Workplace

California’s Compassionate Use Act (CUA) of 1996 decriminalized the use of marijuana for medicinal purposes. However, it did not legalize marijuana. It only shields medical users and caregivers from criminal liability. Recently, Governor Brown signed into law three bills (Assembly Bill 266, Assembly Bill 243, and Senate Bill 643) that comprise the California Medical Marijuana Regulation and Safety Act (MMRSA). While the MMRSA deals with various medical marijuana regulations, it does nothing to impede an employer’s right to maintain a drug free workplace.

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A CLOSE CALL: How Uber is Changing the 1099

The recent upswing in app based driving services like Uber have blurred the line between employees and independent contractors.   

At first glance, it would seem that Uber drivers are clearly independent contractors.  Drivers enjoy the flexibility of when and where they accept assignments, while Uber is able to minimize business costs since the usual benefits afforded employees are absent (overtime pay, minimum wage, meal breaks, unemployment insurance, workers' compensation, etc.).  However, recent holdings have altered any clear distinction between the two classifications.  The result is a multitude of so called independent contractors claiming to be employees entitled to benefits that traditional employees are guaranteed.

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