House Bill 2098, passed during the 2019 legislative session, made a lot of changes to Oregon’s cannabis industry. Among those changes are increased authority for the Oregon Liquor Control Commission (“OLCC”) to take action against unapproved financial interests, sanctions for failure to pay recreational marijuana taxes applicable to OLCC retailers, and an increase in the maximum civil penalty for a single violation from $5,000 to $10,000. This article will delve into these changes and how they may impact licensees.

Enforcement Changes

Anyone who has been following the OLCC commission meetings has undoubtedly noticed a change in the tone of the stipulated settlement ratification discussions. The commissioners, particularly Chairman Paul Rosenbaum, have repeatedly questioned settlement terms and pushed for more aggressive treatment of licensees who incur violations. Chairman Rosenbaum has occasionally voted against ratifying settlements and opined that he expects other commissioners to vote no with him more often as time passes.

Representatives of the OLCC and commissioners alike have said that the leniency shown to licensees during the first few years of the recreational marijuana program should be curtailed now that the laws and rules have been in place for some time. At the same time, the OLCC, the legislature, and Oregonians have begun to hone their enforcement priorities. These law changes reflect those priorities.

Unapproved Financial Interests and Diversion

The foremost enforcement priorities for the OLCC and the legislature are curtailing unapproved financial interests in OLCC licensed businesses and preventing diversion of marijuana products out of the legal system. Thus, ORS 475B.186 is amended such that the OLCC has the authority to restrict, suspend or refuse to renew a license if the agency has probable cause that there is an unapproved financial interest on the license. ORS 475B.186 is further amended to permit the OLCC to seize marijuana items from a licensee if the agency has probable cause that there is an unapproved financial interest on the license or that the licensee has engaged, or is engaging, in the unlawful diversion of marijuana items.

Retailer Tax

OLCC licensed retailers have complained that other retailers who do not pay the recreational marijuana retail taxes required under ORS 475B.710 have an unfair competitive advantage over those that are properly submitting the taxes they collect from customers to the Department of Revenue. Likewise, Oregonians expect that the tax revenues due to the state will be paid and put to use for the benefit of the state and its residents. Previously, the OLCC lacked clear authority to consider delinquent tax payments when making licensing decisions. House Bill 2098 fixed that.

ORS 475B.256 is amended to direct the OLCC to revoke an OLCC recreational marijuana retailer license if, either:
1. the licensee has failed to pay the retailer tax for any two of any four consecutive quarters and the Department of Revenue has issued to the licensee a distraint warrant for the nonpayment of tax; or
2. the licensee has failed to file the retailer tax return twice in any four consecutive quarters and the department has issued to the licensee a notice of determination and assessment for failure to file a return.

Increase in Civil Penalty

Prior to the passage of House Bill 2098, the highest civil penalty the OLCC could impose for a single violation was $5,000. House Bill 2098 amends ORS 475B.416 to increase the maximum civil penalty to $10,000 for each violation. This change has angered many licensees and creates the potential for insurmountable penalties resulting from seemingly minor rule violations. However, it may also provide additional tools for settlement negotiation. For example, when the OLCC would otherwise impose a 60-day suspension or cancel a license for a violation that it considers too serious for a $5,000 civil penalty, it might now consider accepting a $10,000 civil penalty, allowing the licensee to avoid interruption of business.

The law changes created by House Bill 2098 that affect penalties are harsher to OLCC licensees. They were deliberately crafted to move the Oregon cannabis market in the direction of a healthy, mature industry. Time will tell whether the OLCC’s new powers succeed in cutting the bad actors from the industry and boosting the good players. Either way, licensees and their attorneys need to be aware of the new laws and the rules that will follow, to avoid becoming guinea pigs for these new penalties.