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Simple question. Had a game yesterday where my opponent used the spider banner on a goblin bsb and then stuck him in group of 80 orcs with bows. Is this legal? I thought banner says goblins only. I have never played o&g before so I thought I ask

I do not have the book on hand but only a goblin can carrry the banner. But any unit he joins gets the poison attacks

As above.

I am pretty sure about this but will have to check my friends O&G book when I see him next, I was under the impression that Orcs could never be grouped with goblins based on a rule for their race, so this would never be able to happen since they can't mingle in a unit.

Reasoning for it was something along the lines of the Orcs believeing the goblins are below them and it would be demeaning for them to fight along side the Gobbo's

You may be pretty sure, but you would be wrong. Pages 32 and 33 of the 8th edition book have no restriction on mingling orcs and gobbos, and in fat "Size Matters" directly references mixed units

Also bunkering goblin mages in orc units is very common place out here as they form a little congo line that you then throw a goblin boss in there to make them unattackable