Oregon Cannabis: The OLCC License As Security

Oregon Cannabis: The OLCC License As Security
Oregon Cannabis: The OLCC License As Security

Can a creditor, landlord or different third celebration take a safety curiosity in an OLCC license? Can an OLCC licensee collateralize or pledge its license– as if that license had been private property, and never only a permission conferred by the state? These are two sides of an instructional query we’ve been batting round for years as a result of it has critical, sensible implications. The brief reply is: “sure, an OLCC license may be collateralized.”

Now, what I simply wrote is an unsatisfactory authorized reply, for causes past the scope of this text (suffice it to say that it shouldn’t work). However it may and does work regardless. The OLCC agrees. Legal professionals within the Oregon hashish bar additionally agree. Courts… haven’t disagreed. Thus, a few of us hashish attorneys have been securitizing OLCC licenses, and OLCC licensed companies, for years.

The rule at challenge right here is OAR 825-025-1260 (the “Rule”). To paraphrase, the Rule permits OLCC to grant any of the next individuals “momentary authority” to function a licensed enterprise:

  • A trustee
  • The receiver of an bancrupt or bankrupt enterprise
  • The non-public consultant of a deceased licensee
  • An individual holding a [defaulted] safety curiosity within the enterprise

Right here’s the documentation OLCC requires to confer momentary authority beneath the Rule, per a current slide presentation from the Fee itself:

  • For trustees, receiver or private consultant (“PR”)
    • Proof the individual is the authorized trustee, receiver or PR (court docket order establishing non-licensee’s rights within the enterprise, authorized entry paperwork, and written request for authority)
    • A written request for authority to function because the trustee, receiver, or PR which ought to embrace the handle and phone variety of the trustee, receiver or PR
  • For secured celebration
    • Proof of a safety curiosity within the licensed enterprise
    • Proof of the licensee’s default on the secured debt
    • Proof of authorized entry to the true property; and
    • A written request for authority to function as a secured celebration which ought to embrace the handle and phone variety of the secured celebration

You’ll have questions at this level. One of many extra compelling is: “what sort of proof of default will OLCC settle for?” The reply is: “a court docket order is often required.” In some instances, OLCC might also settle for a licensee’s acknowledgment of its grant of a safety curiosity and subsequent default. My workplace, working with OLCC, the Oregon Division of Justice and one different legislation agency, was in a position to push via the primary of those exterior of court docket on that foundation, again in 2019.

Does it matter {that a} court docket order isn’t a safety curiosity beneath UCC Article 9? Nope. Does is matter that an OLCC licensee can not switch or “promote” its license with out OLCC approvals? Nope. None of this issues. All that issues is the truth that OLCC presently treats these licenses like private property which may be secured, collateralized, transferred and liquidated for worth. The truth that OLCC isn’t issuing new licenses, but permits the “sale” of present licenses, is in keeping with this therapy.

I ought to emphasize at this level that the Rule contemplates solely a “momentary” operational authority by a 3rd celebration. The aim of the Rule is to permit a 3rd celebration to step in and wind up the enterprise, relatively than run the enterprise indefinitely. Thus, when OLCC points an order beneath the Rule, it offers a normal, 60-day horizon. Extensions are liberally granted, supplied the third celebration can present a passable clarification of want in every case.

I also needs to emphasize that the Rule will probably change subsequent 12 months, together with rulemaking OLCC plans to undertake on associated ideas of “licensability” and license transfers. (Right here, I’m assuming the HB 4016 license issuance moratorium will probably be prolonged past March 31, 2024.) You possibly can anticipate to see the Rule constructed out to handle the adjudicated incapacity of a licensee, for starters. However you may also anticipate critical dialogue concerning the basic validity of a rule or observe that permits a celebration to securitize a “license.” At this level, It’s only a query of whether or not the OLCC addresses this earlier than a court docket does.

For now, take excellent care in drafting your safety agreements, pledge agreements, leases, and many others. An OLCC license generally is a useful asset. Failing to collateralize that asset within the method that OLCC want to see might impair the rights and restoration prospects of anybody owed cash by a licensed Oregon hashish enterprise.

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