OMMA’s emergency rules give direction to seed-to-sale and newly signed laws

OMMA’s newly effectuated emergency rules give a good idea on which direction the program is heading as it pertains to its seed-to-sale implementation and upcoming additional governance requirements.

OMMA announced last week, on July 1st, that new emergency rules impacting Oklahoma Medical Marijuana Authority licenses have been signed by the Governor and became effective on June 28th, 2021. Much of what is included has already been introduced in previous blog posts overviewing incoming regulation from the first legislative session of the year which saw some six cannabis bills pass. The new rules provide a regulatory framework to implement new laws and will be essential to understand and be ready to comply with immediately.

The road to seed-to-sale implementation

Starting with a hot and relevant topic, in the set of new rules OMMA states explicitly that cannabis businesses “will bear the financial responsibility for all compliance and inventory tracking obligations.”

The Department will not contribute to, fund, or subsidize any commercial licensee's compliance or tracking expenses. Nothing herein shall be construed to require the Department to contribute to, subsidize, or fund in any way a commercial licensee’s compliance or tracking expenses.

-OMMA | OSDH 681 EME

This rule directly challenges what is being sought in court through a class action lawsuit—which is exactly for the state to pay for commercial licensee’s tracking expenses via collected tax revenues. If and when the TRO currently placed on Metrc implementation expires, and barring any court ruling that keeps it from happening as planned entirely, cannabis business owners now have written rule who will be footing the bill. HB 2646 which passed this legislative session, gave the OSDH authority to issue emergency orders which if not complied with whether due to negligence or not, will subject business owners to a $10,000 fine per infracting day. The argument around OMMA’s authority to enact such rules and processes by which they should be enacted might not take hold as well as it once could.

The new rules do not mention Metrc a single time, but do revise the definition of "Inventory tracking system" or "State inventory tracking system" to mean “the required tracking system established by the Department” and adds the definition of a to seed-to-sale tracking system. Licensees have the illusion of choice with some clarifying language around seed-to-sale systems, but may face a more trouble than it’s worth scenario that concludes in them reporting all required data directly to the State’s inventory tracking system" anyway.

OMMA’s new rules establish a minimum requirement to report inventory after each individual sale to the Department in the State inventory tracking system and reconciliation of inventories at the end of each day of business. Confirming some form of what’s to come, they also further establish that commercial licensees will be required to use RFID tags from “a Department-approved supplier” for the State Inventory Tracking System and be responsible for the cost of all said tags as well as any associated vendor fees. The rules provide the protocols for attaching tags to mothers and immature plants unable to bear the weight as well as in the context of wholesale packages.

Since licensees have been known to share licenses with umbrella grows, it should be mentioned that RFID tags must contain the legal name and correct license number of the commercial licensee that ordered them. You will not be able to use another licensee’s RFID tags or reuse any tag that has already been affixed to a plant or product previously.

Commercial licensees will need to have at least one owner or manager who is acting as a delegated inventory tracking system administrator. Each inventory tracking administrator will be given an individual login to the “State inventory tracking system,” and access must be revoked and changes reflected within 3 days in the case of an administrator leaving or no longer utilizing the system within their role. OMMA’s new rules also detail what to do in the case of lost access to the system.

As long as there is a pending lawsuit, there are some things that remain to be seen regarding tags. The regulatory framework for implementing such a system though is now clear and in effect.

Corporate ownership and license transfers

SB 1033 authorized North American publicly traded companies to purchase up to 40% of the equity in an existing Oklahoma business that has held a valid Oklahoma medical marijuana grower, processor or transporter license for at least 18 months prior to the investment. OMMA’s new emergency rules present the protocol for such an acquisition and change. Excluding the publicly traded company, 75%  ownership must remain in belonging to Oklahoma residents as required in the Oklahoma Medical Marijuana and Patient Protection Act. Interestingly, this is the very first approach OMMA has validated that affects the current residency requirements, so a notion of policy change could possibly be gleaned from this adjustment. 

Another notion that jumped out in our initial review was the omission of language previously barring business licenses to be transferred from one person to another person, from one medical marijuana business to another, or from one legal entity to another. Once we learn more on this developing possibility of license transfer, we will update with a dedicated post.

While the opportunity for corporate acquisition of 40% of Oklahoma’s cannabis market is cause for concern to many in the industry, these rules together increase the asset value of a license and provide an exit strategy roadmap for licensees who are looking over the horizon towards an inevitable phase of merger and acquisition. 

Inspections and other compliance pieces

With the passing of HB 2272 comes the introduction of operational status visits. OMMA’s new emergency rules further establish the logistics of these initial inspections - most notably, these inspections will be scheduled within the first 180 days of license approval, will take place at the principal place of business, and will be utilized to verify whether you are already in or working towards operational status. You will be inspected within the first six months of licensure. Make adoption and presentation of all compliance requirements an essential aspect of preparing your facility for business. In the event you’re not able to prove you’re working towards operational status, the State will give you at least one additional 180 day grace period with follow-up inspections before seeking revocation of your license; though the State does have the discretion to grant an additional grace period.

Disclosure of foreign financial interest was another key provision passed in HB 2272 that, now in effect, requires licensees to attest by penalty of perjury any financial interest in their cannabis business to the Oklahoma Bureau of Narcotics and Dangerous Drugs. Licensees have sixty days to submit such attestation via a form available on OBNDD’s website, or will have their license immediately revoked by OMMA. The rules clarify that a “medical marijuana business that submits a complete and approved attestation to OBNDD within sixty (60) days of revocation of its license may be eligible to seek reinstatement of its license.” The disclosure provision is troublesome in the event lack of awareness causes a revocation for a licensee otherwise operating by-the-book who would then be facing an illegal operation situation that must be remedied quickly. The clock is already ticking for existing licensees. Newly approved licensees will have sixty days upon their approval.

Buckle up

The best way to understand what is contained within OMMA’s new emergency rules is to read them yourself. There’s more meat in the rules than what we’ve picked out as most immediately relevant. There is more opportunity for slippage now, more to be aware of, and more to manage. The cost that comes with implementing these changes into your business pales in comparison to the cost of being caught out of compliance. The road to legalizing cannabis has always been bumpy with legislative twists and turns. The program may be changing in some sense, but that is inevitable with such exponential growth as Oklahoma has seen and created within the cannabis industry. Being in business in the cannabis industry is an act of resistance in and of itself to an extent. To continue to operate within it, shape it and find success, go by the book, follow these new directions, and continue down the road toward your cannabis business goals and dreams. We’re buckled up and along for the ride, here to help when you need.

Edited by Caleb Stiles