What if You Break the Rules? Cannabis Administrative Litigation in Oregon

Follow the rules or risk having to close your doors–permanently.Recreational cannabis is highly regulated. In Oregon, the Oregon Liquor Control Commission (OLCC) is the agency tasked with implementing and enforcing the recreational cannabis rules. The rules are complex and frequently change (see posts on that here, here, here, and here) meaning compliance can be difficult even with the best of intentions. For that reason, marijuana businesses should set up a comprehensive compliance plan to avoid violating OLCC rules. But what happens when a rule is violated?
When the OLCC determines a cannabis business or its employee has violated a rule, it issues what is known as a “charging document.” The charging document will list what rule has been violated and the penalty the OLCC plans to assess. The rules identify six categories of violations. The categories identify different levels of egregiousness and the OLCC, while not required to assess a penalty, has adopted guidelines for the kinds of penalties cannabis businesses can expect:
Category I: These are considered the most egregious violation and can result in license revocation. These violations include things like failure to verify the age of a minor, intentional false statements made to the OLCC, or intentional destruction or concealment of evidence
Category II: These are violations that create a present threat to public health or safety and include things such as being under the influence of intoxicants while on duty or failure to permit a premises inspection. These violations can result in a 30 day suspicion of a license or up to $4950 penalty.
Category II(b): This is a special category reserved for the unintentional sale of marijuana to a minor. It results in either a 30 day license suspension or up to $4950 penalty.
Category III: These violations create a potential threat to public health or safety and include things such as allowing a minor to enter a prohibited area or permitting sales by an employee without a marijuana workers’ permit. Category III Violations can result in a 10 day suspension or a $1650 fine.
Category IV: These violations create a climate conducive to abuses associated with the sale or manufacture of marijuana items and include operating a business after lawful hours for the sale of marijuana or removal of required signs and notices. These violations can result in a 7 day suspension or a $1115 penalty.
Category V: These are the least egregious violations and include things such as permitting marijuana items to be given as a prize or failure to notify the commissions of temporary closure of a licensed business. Category V violations can result in a 3 day suspension or up to a $495 penalty.
The OLCC determines the proper sanction by taking into account the egregiousness of the violation, the number of violations in the past two years, and any mitigating factors. Mitigating factors include: (1) making a good faith effort to prevent a violation and (2) extraordinary cooperation in the violation investigation, demonstrating the licensee or permittee accepts responsibility.
If you ever receive an OLCC charging document, it is important to understand that the inquiry has only just begun. The OLCC charging document is not a final finding. The business has the opportunity to contest the charging document and request an administrative hearing. If the charging document alleges a category I or a category II violation, a written answer must be filed along with the request for hearing. The written answer requires more than just a general denial and should specify specific defenses to the allegation in the charging document. It is absolutely critical to make this submission timely, and to be comprehensive and persuasive in reply.
Contested case hearings are similar to trials but not quite as formal. The parties are allowed to be represented by attorneys. Evidence can be submitted and witnesses can be called to the stand. Administrative law judges (ALJs) preside over the contested case hearing. After the hearing is completed, the ALJ will issue a proposed order. The proposed order will include a evidentiary background and findings about whether the cannabis business has violated a rule. The OLCC will review and issue a final order. The final order either adopting the ALJ’s findings or rejecting the findings. The cannabis business can appeal the final order to the Court of Appeals. The final order will include information regarding appeal procedures and timelines.
Rule violations can and do occur. Cannabis businesses should have comprehensive plans in place to stay in compliance at all times. When a rule violation does occur, know that qualified attorneys can help you navigate the administrative hearing process.

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