The legalization of cannabis by states across the nation has led to significant growth in the production and distribution of legal marijuana and an explosion of related service providers. The laws vary greatly from state to state and the sale of cannabis is still illegal under federal law. This guide is an overview for the state of Oklahoma and highlights practice areas impacting cannabis laws, including:
• Location & Zoning
• Business Formation
Oklahoma voters approved a ballot measure on June 26, 2018, legalizing medical marijuana law. The law, as amended, is codified as 63 Okla. Stat. § 420 et seq. (Medical Marijuana); the Unity Act, Title 63, Okla. Stat. Ann. § 427.1 et seq.; and, the Oklahoma Medical Marijuana Waste Management Act, 63 Okla. Stat. § 427a et seq. The law established the Oklahoma Medical Marijuana Authority (OMMA) as a division of the Oklahoma State Department of Health to ensure the health and safety of Oklahomans and provide regulation of medical marijuana. OMMA has established a number of regulations for patients and the industry, including dispensaries, growers, processors, transporters, researchers, laboratories, and licensure of the same, which are found in the Oklahoma Administrative Code (OAC) at OAC 310: 681-1-1 through 681-10-4. In addition to OMMA, all medical marijuana commercial licensees must complete an application and register with the Oklahoma, USA Introduction Legislation CANNABIS GUIDE / Oklahoma, USA 104 Oklahoma Bureau of Narcotics and Dangerous Drugs (OBNDD). Further, dispensaries, growers, and seed sellers must also obtain a nursery license or seed license from the Oklahoma Department of Agriculture, Food and Forestry.
Oklahoma law continues to develop in this area as the medical marijuana industry has grown. Proposed amendments are introduced to the above statutory and regulatory measures governing medical marijuana on a frequent basis. This makes it imperative to constantly monitor the current state of the law in this area..
Location & Zoning
As a condition of obtaining a license to operate a medical marijuana facility in Oklahoma, a business owner must prove that the location of the proposed business meets all requisite state law and local ordinance spacing requirements. Oklahoma law requires that any medical marijuana dispensary be at least 1,000 feet from the nearest public or private school as set forth in 63 Okla. Stat. § 425(G). To conclusively establish that the proposed location meets this requirement, OMMA requires submission of a radius report with an application. Such radius report should be prepared by a licensed surveyor and demonstrate that the shortest straight-line distance from any property line of a school is not closer than 1,000 linear feet from the property line of the proposed business. At present, this requirement has not been extended to growing or processing facilities.
In addition to the state-law spacing requirements set forth in 63 Okla. Stat. § 425, many communities in Oklahoma have their own local ordinances governing spacing. A second condition of obtaining a license to operate a medical marijuana facility in Oklahoma is the submission a Certificate of Compliance with the permit application. This Certificate of Compliance provides evidence to OMMA that the proposed location of the business meets all of the local ordinances related to the development, construction, and operation of the proposed business. The current form of the Certificate of Compliance requires signatures by all relevant local officials evidencing compliance.
In all communities, it is a requirement that the location of the proposed business be properly zoned to accommodate the proposed use. As such, any proposed medical marijuana business may only be operated on a properly zoned parcel. In addition to this zoning requirement, many of Oklahoma’s largest communities including Oklahoma City, Tulsa, Sand Springs, Bartlesville, and Claremore have their own spacing requirements for location of a medical marijuana business. At present almost all of these ordinances are limited to dispensaries and do not affect growing or processing operations. These spacing requirements are often measured differently (i.e. – from the “nearest wall” of the building rather than the property line) and will likely require additional radius report(s) to satisfy local officials. In the event that zoning Location & Zoning CANNABIS GUIDE / Oklahoma, USA 105 relief is required, such relief must be obtained prior to submission of the Certificate of Compliance in most cases.
Construction of a medical marijuana facility in Oklahoma is governed by Section 681 of Title 310 of the Oklahoma Administrative Code. Under Subchapter 6 of this Section, there are broad requirements for ensuring security of the marijuana at all times. Required security measures are not specifically delineated but customarily include multiple security cameras and key-code or card locks as well as on-site security and use of logs. Many local officials have non-codified requirements for security that are imposed as a condition of approval for zoning relief. As such, most buildings constructed or renovated for commercial medical marijuana use are constructed or renovated in concert with a comprehensive 24-hour security plan. It should be noted that several sections of Subchapter 6 (Commercial Facilities) have been reserved for future use. Accordingly, it is expected that further rules related to construction and security of commercial facilities will be contemplated and enacted. It should be noted that this concise review does not include analysis regarding location of waste disposal facilities. The requirements for waste disposal facilities are set forth in Subchapter 9 of Title 310, Chapter 681 of the Oklahoma Administrative Code and are different from the location requirements for other facilities.
A qualified individual or business entity may obtain a grower, processor, transportation, research, retail, or disposal license related to commercial medical marijuana. For a business entity to qualify for any medical marijuana license listed above, the entity cannot have any Oklahoma nonresident interest exceeding 25% as set forth in 63 Okla. Stat. § 421 et seq.
The business entities authorized by Oklahoma statutes do not materially differ from the common Delaware business entities. Oklahoma Corporations are authorized by 18 Okla. Stat. § 1001. Limited Liability Companies are formed under 18 Okla. Stat. § 2000. General and limited partnerships are governed by 54 Okla. Stat. § 1-100 and 1-1001 respectively. Common statutory requirements include (a) name, (b) registered agent for process service and physical address within the state, and (c) signature on formation documents. No operating or partnership agreement or corporate bylaws are required to be filed at the time of formation.
Medical marijuana has a protected status in Oklahoma law. The law provides an employer may not discriminate in employment against an applicant or employee solely upon the basis of that person’s status as a “medical marijuana licensee.” Common wisdom interprets that to mean a person who is a holder of a valid license (patient or caregiver) under Oklahoma’s law.
Business Formation Employment CANNABIS GUIDE / Oklahoma, USA 106 In recognition of employers’ concerns, the law provides that an employer may still prohibit the use and possession of marijuana, including medical marijuana, at the place of employment and during the hours of employment. In other words, no employer has to allow or even accommodate a person’s possession or use of medical marijuana at work. Oklahoma law also advises owners of public places to post signs if they want to ban “marijuana smoking or marijuana vaping.” 63 Okla. Stat. § 1-1525
The next issue is drug testing. For employees who are required to be tested under federal law (e.g., tested pursuant to the Department of Transportation regulations), federal law will govern. Under federal law, marijuana is illegal and the federal government does not recognize any state’s law to the contrary.
Oklahoma permits employers to conduct drug testing under its Standards for Workplace Drug and Alcohol Testing Act, 40 Okla. Stat. § 551, et seq, which requires the policy be in writing. “Drug” under that law includes “cannabinoids” or a metabolite of” cannabinoids; in other words, marijuana.
Oklahoma law permits testing employees for marijuana, but provides that an employer may not impose adverse consequences for a positive test for marijuana components or metabolites (which would include medical marijuana), unless:
(1) the person is not in possession of a valid medical marijuana license,
(2) the licensee possesses, consumes, or is under the influence of medical marijuana or medical marijuana product while at the place of employment or during the fulfillment of employment obligations, or
(3) the licensee works in or is applying for a position involving safety-sensitive job duties, as defined defined 63 Okla. Stat. § 427.8(H). There is a definition of “safety-sensitive” found at 63 Okla. Stat. § 427.8(K).
Sales, Use, and Excise Tax
An Oklahoma sales tax permit is obtained through the Oklahoma Tax Commission (OTC) by registering as a new business or retailer. A dispensary must either hold or obtain an Oklahoma Sales tax permit from the Oklahoma Tax Commission. OAC 710:65-9-1. A new business may register with the Oklahoma Tax Commission online at www. oktap.tax.ok.gov. Sales tax reports are filed on form STS20002-A and are due by the 20th day following the close of the prior month.
The base Oklahoma sales tax rate is 4.5% in addition to the rate assessments that vary by county and municipality. An additional marijuana excise tax of seven percent (7.00%) is levied and Taxation CANNABIS GUIDE / Oklahoma, USA 107 collected on all retail marijuana sales in addition to the normal sales tax on the gross sales price received by the seller. The additional excise tax is reported on a sep arate Medical Marijuana Return also due by the 20th day following the close of the prior month.
Sales Tax Exemptions
All gross receipts are presumed taxable unless the seller proves that the sale is exempt. Unless the purchaser proves otherwise, it is also presumed that personal property sold, leased, or rented by any person for delivery in Oklahoma is sold, leased, or rented for storage, use or other consumption in the state. There is a general sales tax exemption for sales to persons engaged in the business of reselling purchases. If the sale occurs to an Oklahoma resident, then the resident must possess a sales tax permit from OTC and the seller will be assessed the liability where an exemption certificate is found to be invalid as listed in 68 Okla. Stat. § 1357; OAC 7 10:65-13-200.
Agricultural Sales Tax Exemption Permit
Provided all other requirements are met, persons possessing a commercial grower license issued by the Department are eligible for an agricultural sales tax exemption permit. The applicant grower must provide the commercial grower the license number issued to the grower by the Department. OAC 710:65-19-201(e).
Manufacturer’s Sales Tax Exemption Permit Ineligibility
The processing of marijuana is not commonly regarded as manufacturing; therefore, marijuana processors are not eligible for a manufacturer’s sales tax exemption permit. However, processors are eligible for an Oklahoma sales tax permit, which will allow them to purchase marijuana and other marijuana products exempt from sales tax to be resold to dispensaries. Id. at (f).
Other Compliance Reporting
OMMA is a division of the Oklahoma Department of Health, established by the statutes codifying State Question 788, 63 Okla. Stat § 420, § 427 et seq. Any medical marijuana commercial licensee, research facility, education facility, waste disposal facility, or permitted waste disposal facility locations issued a license is required under Oklahoma law to obtain an OBNDD registration shall do so prior to possessing or handling any marijuana or marijuana product as set forth in Title 310:681-1-5(c), Administrative Rules for Okla. State Dept of Health.
OMMA requires monthly reports on production and sales from growers, processors, research facilities, and dispensaries. The reports are due by the fifteenth (15th) of each month for the preceding month.
The penalty for failure to file a delinquent report within 30 days of written notice of such deficiency from OMMA will result in a $500 fine and any other administrative action and penalty authorized by law. A grossly inaccurate report that cannot be reasonably attributed to human error, may result in a $5,000 fine. A second grossly inaccurate report within two years will result in the revocation of the commercial license. OMMA has broad authority to impose fines and administrative penalties including revocation for noncompliance and criminal activity. Of course, a revocation of a medical marijuana commercial license renders all unlicensed activities criminal conduct subject to investigation and criminal prosecution. Marijuana grown in Oklahoma is accounted for as required under IRC § 280E.
The Oklahoma income tax statutory scheme generally conforms to the terms defined by the Internal Revenue Code (IRC) such as “Gross Income” and “Adjusted Gross Income” and by extension, IRC 280E to the extent of conformity to the underlying federal deduction or credit. To date, no examinations of Oklahoma medical marijuana business tax returns have resulted in the disallowance of ordinary and necessary business expenses within the ambit of §280E as bar to business expense deductions from gross income related to distributing a federally controlled substance.
Countless business structures are available to reduce civil or criminal liability, minimize income taxes, or scale operations. The optimal business structure depends on the goals of the principals and/or their individual circumstances.