Comparing & Contrasting Washington Regulations

Washington State’s marijuana rules and regulations are unique, and many prospective business owners, operators, and investors fear the restrictions exclusive to this state may negatively influence their businesses. However, with knowledge and understanding of these rules, hopeful Washington cannabis market entrants can exercise foresight and actually utilize these restrictions to their benefit.

The primary reason for the particularity of Washington’s cannabis regulatory scheme is that it was created from scratch, the local legislature having no available framework to reference from any other governing body. Instead, it relied upon many structures and policies developed for post-prohibition alcohol laws. In 2012, Washington – one of two of the original states, along with Colorado – legalized recreational marijuana for adults twenty-one years or older and began independently pioneering applicable rules and regulations. Five years later, this process has resulted in a set of regulations that, with hindsight, seem inefficient and difficult to follow without significant assistance and planning.

Today, twenty-nine states and the District of Columbia sanction medical use of cannabis, eight of which allow recreational use. While many differences exist between these states’ statutory schemes and Washington’s, the major provisions that present common issues and concerns for those entering the market are (i) Washington’s residency requirements, (ii) unique licensing restrictions, and (iii) prohibition against vertical integration, each of which is examined below:

Residency Requirements

First, Washington has enacted strict residency requirements for owners, operators, and investors in licensed marijuana business. All owners and their spouses must demonstrate residency in Washington State for six months prior to submitting their application for business ownership. While prospective investors in a marijuana business – referred to as “financiers” in Washington – need not meet the residency requirement, they cannot share in profits from the business nor are they permitted to exercise control over the operations of the business. Non-resident financiers are limited to receiving only a basic return on investment, as if they have given a personal loan to the company.

License Quotas

Second, the Washington legislature capped the number of available licenses for both producers and retailers. Retail licenses are limited to a designated number. Throughout 2015, the license cap for statewide cannabis stores in Washington was set at 334. The Washington State Liquor and Cannabis Board later authorized 222 additional retail licenses, bringing the total number to 556. Determining the number of available producer licenses is more difficult. Producer licenses are restricted by a policy determination based on studies evaluating the maximum amount of marijuana canopy space required to supply the Washington market.

Further, retail licenses in Washington are location-specific and, once issued, owners of a licensed retail cannabis business are only permitted to relocate to another property within the same municipality, city, or unincorporated county boundaries, as applicable. For instance, a retail license issued in Tacoma, Washington is permitted to move to a new property within the Tacoma city limits, but it cannot move to a new jurisdiction, such as neighboring Seattle. Other relevant licenses are more movable after issuance.

No Vertical Integration

Finally, Washington strictly rejects the notion and practice of vertical integration with respect to marijuana businesses. The state’s express policy is to prohibit a single market player’s control of the product from seed to sale; therefore, the law requires the cannabis product to change hands at least once between production and final sale to consumers. In practice, this means that a single person or entity is not permitted to obtain both a producer or processor license and a retail license. In other words, a single person or entity may obtain both a producer and processor license, but if it owns either one or both of these licenses, it may not own a retail license. This rule is strictly enforced and anything deemed “undue influence” between a producer/processor and a retailer may result in penalties or revocation of licenses.

While the above considerations – as well as other important differences between Washington and other states’ regulatory schemes – may pose significant barriers to unsuspecting prospective cannabis businesses owners, operators, and investors in Washington, with proper advice and planning these limitations can be leveraged to structure and smoothly operate a successful marijuana business in Washington State.

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