Oregon Cannabis: Deschutes County Sues OLCC and DOR for a Share of Marijuana Tax Revenues

13 Sep Oregon Cannabis: Deschutes County Sues OLCC and DOR for a Share of Marijuana Tax Revenues

Deschutes County (“DC”) has had a contentious relationship with marijuana and, by extension, the Oregon Liquor & Cannabis Commission (“OLCC”). See here, here, here, and here.

In the latest development, DC filed suit last week against the Oregon Department of Revenue (“DOR”) and the OLCC concerning distributions from the Oregon Marijuana Account. According to the Complaint, DC has not received any transfers from the Oregon Marijuana Account since August 19, 2019.

Some background is in order. Oregon statutes 475B.759 and 475B.720 establish the Oregon Marijuana Account as the recipient of most of the tax revenue generated by the Oregon marijuana industry. (Tax revenue may exceed $150 million in 2021 after sales exceeded $1 billion in 2020). The DOR is tasked with making quarterly transfers of the 10% of the account to Oregon counties.

A precise statute governs each county’s quarterly share. Generally, the formula depends on the commercially available area of grow canopies and the number of licenses in the county. A county that prohibits the establishment of marijuana businesses is not eligible to receive transfers from the account. The idea is that a county receives tax revenue from the Oregon Marijuana Account proportionate to the amount of commercial marijuana activity in that county.

DC certainly has marijuana producers, processors, wholesalers, and retailers operating within its boundaries. So why is DC not, as it alleges, receiving money from the Oregon Marijuana Account?

The complaint tells a Kafkaesque story. In November 2019, the OLCC sent DC a survey that asked, “Did your jurisdiction prohibit OLCC Producers for any all or any portion of [the third quarter]?” The same question was also asked with respect to processors, wholesalers, and retailers. Apparently, the survey allowed for only a “yes” or “no” answer. But at that time DC had adopted ordinances that prohibited new marijuana producers and processors from submitting new applications for land use permits. DC believed it could not correctly select either of the binary options. DC emailed the OLCC explaining its predicament. The OLCC forwarded the email to the DOR, which responded that the county ordinances sounded like a moratorium rather than a ban. The OLCC forwarded the DOR’s response to DC. According to the complaint, on this basis DC believed it would be receiving its quarterly payment.

But the DOR did not make a third-quarter transfer to DC in 2019. And the DOR recommended that DC contact the Oregon Department of Justice (“DOJ”). A few communications were exchanged but no revenue payments were transferred to DC.

In January 2020, DC filed a petition for a declaratory ruling with the DOR, the OLCC, and the Department of Administrative Services. The DC asked for a formal interpretation of the Oregon Marijuana Account statutes as relevant to the transfer of tax revenues to DC. According to the complaint, months went by and nothing happened. Save for the various agencies exchanging letters amongst themselves and with DC. Ultimately the agencies declined to provide any kind of interpretation – and the DOR continued to withhold the transfer of any funds from the Oregon Marijuana Account to DC.

In November 2020, DC voters elected to uphold the county ordinances that prohibited the permitting of additional marijuana producers and processors. But existing marijuana business, of any type, were not impacted. Still no tax revenue had been transferred to Deschutes County, per the complaint. So it filed a lawsuit seeking various declarations from the Court to the effect that it is entitled to a share of marijuana tax revenues.

This is an unusual case in that one would not have expected the dispute to turn into a full-blown lawsuit. So we will be keeping an eye on how it proceeds. (Feel free to email me for a copy of the complaint).