Wednesday, April 23, 2014

Lottery for Marijuana Retail Licenses

Eyes are on the Washington state Liquor Control Board (LCB) this week as applicants await the result of the lottery to determine the recipients of licenses to operate recreational marijuana retail stores.  The process of selection will be an independent, double-blind lottery to produce ordered lists of applicants for each jurisdiction, for a total of 334 stores across the state.  The lottery will be performed by the Social and Economic Sciences Research Center of Washington State University and the accounting firm Kraght-Snell of Seattle, who currently oversees Washington’s state lottery.

2,171 applications for retail licenses were submitted to the LCB in late 2013. Starting in late February, applicants were asked to complete pre-qualifying packets, providing five pieces of information: applicants’ personal criminal history, over-21 age verification, proof of Washington state residency, proof of Washington state business licensure, and a leasing agreement for a location address outside the 1,000’ buffer on sensitive areas. In March, LCB deputy director Randy Simmons reportedly stated that more than 500 applicants had failed to submit the information within the timeframe allotted. Of the applicants who did submit by the deadline, roughly 20-50 percent did not provide the agency with all of the required information.  Finally, this week we learned that an undisclosed number of applicants with completed packets have been administratively withdrawn from the lottery process, due to incomplete packets or failure to meet one or more requirements. Despite much public conjecture, no firm number has been released for the number of applicants who will participate in the lottery this week. We estimate that 800-1,250 applicants are qualified to participate at this time.

The state will release the results of the lottery on May 2, at www.liq.wa.gov. All pre-screened applicants will be notified of their rank in the jurisdiction for their location. Licenses will be issued in batches of 10-20 in the first week of July, beginning with the most populous areas.  The lottery will produce ranked lists for jurisdictions under bans or moratoria, which will be used to issue licenses when permitted. In cases where applicants are found to be ineligible for the retail license, they will cede their position on the list to the next qualifying applicant. State officials expect the first retail stores to open in July 2014, but many anticipate that supply will be limited until a larger number of producers and processors are licensed and operational.

Wednesday, March 26, 2014

State Legislature Fails to Pass MMJ Bill by Deadline

Originally posted at www.keblaw.com on March 17, 2014.

Despite intense lobbying and countless public hearings, the state legislature failed to pass a bill addressing medical marijuana by Thursday’s midnight deadline.   This means that SB 5887 and HB 2149 (the “Cody Bill”) have been shelved, at least for now.

The next regular legislative session starts in January 2015.  This session will last 105 days, as opposed to this year’s 60-day session.  In the meantime, the Governor may call an extraordinary session. Extraordinary sessions are to address specific issues, usually the budget. There is no limit on the number of extraordinary sessions in a year, but they only last 30 days.  In other words, today’s development is by no means the end of the story.  We may see the legislature address medical marijuana in the coming year during an extraordinary session (assuming one is called) or in the next regular session starting in January.
Despite how you felt about SB 5887 and HB 2149, the legislature’s failure to act was problematic.  The consequences of this inaction are addressed below. 

Do not interpret the legislature’s failure to pass a bill as an endorsement of our current medical marijuana laws.  The failure to pass a bill was likely the result of disagreement on the severity of changes to our MMJ laws, as opposed to whether change is needed.  During this session, both the house and the senate individually passed bills making significant changes to the laws, including the elimination of collective gardens (the house proposed to eliminate gardens in May 2015 and the senate in Sept. 2015).  Thus, as a whole, there is legislative agreement that our current MMJ system should be reworked; specifics on timing, taxes, and a patient registry remain uncertain.

Cities and counties will likely fill the void left by the state legislature.   Countless local authorities have already passed moratoriums on medical collective gardens, including King County. Even Seattle, a city with arguably the most pro-pot policies, enacted legislation that could eliminate collective gardens by January 2015.  

Expect the Department of Revenue and local zoning code enforcement officers to continue to play a role on curtailing MMJ growth.  In the last year, as MMJ has grown, the state Department of Revenue and local zoning code enforcement officers have targeted medical marijuana establishments and organizations.  Expect this to continue.  Tax assessments and code enforcement actions are effective at shutting down businesses, incur minimal expense, and result in less public outcry than criminal prosecution. 

Even though the state failed to act, the Feds may—which is worse.  Washington has been fortunate to avoid the erratic and aggressive criminal prosecution of MMJ, like you see in California and Montana.  However, if the state legislature continues to ignore Washington’s largely unregulated MMJ industry, it’s uncertain how the DEA will respond. 

On the plus side, the legislature did manage to adopt HB 2304.  This is a welcome development.  The bill expressly allows for concentrates, and distinguishes those from infused products by a 60% THC threshold.  Prior to this change, the Liquor Control Board ("LCB") had created a work-around, allowing for concentrates as “infused products for inhalation.”  The LCB will likely replace this term with “concentrates,” which would result in few changes, other than allowing processors to avoid adding small amounts of inert oil into concentrate for the purpose of qualifying the product as “infused.” 

Under the bill, marijuana concentrates are defined as “products consisting wholly or in part of the resin extracted from any part of the plant Cannabis and having a THC  concentration greater than sixty percent.” 

Infused products are defined as “products that contain marijuana or marijuana extracts and, are intended for human use, and have a THC concentration greater than 0.3 percent and no greater than sixty percent.” 

The consumer transaction limit for concentrates mirrors what the LCB already put into place:
·         1 ounce of useable marijuana (flower)
·         16 ounces of solid infused product (like a brownie)
·         72 ounces of liquid infused product (like a soda)
·         7 grams of concentrates

In addition to allowing for concentrates, HB 2304 expressly protects a license applicant’s financial information from public disclosure.  As a result, the law now expressly grants marijuana license applicants the same privacy protections afforded to alcohol license applicants. 

Specifically, the law was revised to state that “financial information, including but not limited to account numbers and values, and other identification numbers supplied by or on behalf of a person, firm, corporation, limited liability company, partnership, or other entity related to an application for a . . . marijuana producer, processor, or retailer license” is not subject to public disclosure under our states public records act.

Wednesday, March 12, 2014

When Will the Market Open?


Last week, the Washington Liquor Control Board ("LCB") granted the first license to produce and process marijuana for recreational use.  The licensee, Sean Green of Kouchlock Productions, will grow 21,000 square feet in his Spokane facility. He reports that he’ll market starter plants to other producers initially, and later expand to supply the retail market as it opens this summer.

This announcement is slightly behind schedule, as the LCB was expected to begin issuing producer/processor licenses in February.  By all accounts, the LCB was not prepared to handle the volume of over 7,000 applications it received.  After the recent policy change limiting producer applicants to only one license, 900+ applications were removed from the list.  However, this still leaves almost 1,900 producer applications alone – and some of them have not yet begun the review process.

Brian Smith, spokesperson for the LCB, set the expectation for a 90-day review period in a December Seattle P-I article: “when you combine the extra work with the glut of applications within a short application window you get the estimated 90 days for the average application.

Based on this statement, we should expect most licenses to be issued next week for approved businesses that applied during the window that closed December 20, 2013 . . . but don't hold your breath.  Hundreds of producer applicants are still waiting for their initial contact from the LCB.   It is likely only a handful of producer licenses will be issued over the coming weeks.

Our hope is that the LCB will provide the public with additional transparency regarding the schedule under which the agency expects to issue licenses for the producers, processors, and retailers, many of whom have made significant investments in property and equipment.

LCB representatives have noted that they expect the retail lottery to occur in April and to begin issuing retail licenses in June/July.   These statements appear a bit aggressive, considering how slowly things have moved thus far.  We can speculate that the bulk of retail will not open until late summer or early fall (August-October).

Likely, the producer and processor licenses will trickle in over the coming 6 months, with the bulk of producer/processor licenses being issued also in late summer and early fall (August-October).

At this point, our best guess (with the limited information available) is that the licensed recreational marijuana market in Washington will be in full swing by December, 2014.

Monday, March 3, 2014

LCB Announces New Policy: One Producer's License at 70%

The LCB announced today a major new “ Interim Policy.”  In an effort to manage the state-wide 2 million square foot plant canopy limitation, the LCB has decided to restrict each principal/entity to ONE producer’s license.
For those of you with more than one producer application, you will be given the option to withdraw (with refund) your other applications, or to put those applications on hold for a year (or until the LCB determines that more licenses are needed).
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 In addition to the limit on producer licenses, the allowable plant canopy per license is being reduced to 70% of the original tier allotments.  As a result, the new producer tiers would be as follows:

                Tier 1:    0 – 1,400   square feet
                Tier 2:    1,401 – 7,000 square feet
                Tier 3:    7,001 – 21,000 square feet

As this was explained to our office, this reduction in tiers would not affect those who requested square footage within the new limits.  In other words, an applicant who requested 4,000 square feet as a tier 2 would not see a reduction, but an applicant who requested 8,000 as a tier 2 would be reduced to 7,000.

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 In some respects, this announcement is not a complete shock, since we already knew the state-wide canopy size restriction was problematic.  With 2,858 producer license applications outstanding, the current demand for plant canopy far exceeded the 2 million limitation.  That said, few in the industry would have guessed that the LCB would limit applicants to one producer's license.

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 This development is not the end of the story.  Many expect the LCB to revisit the state-wide canopy size allotment in the coming year, especially in light of recent state bills which merge the medical marijuana market into I-502.  If this "merger" were to happen, many expect the LCB to increase the state-wide canopy limit in order to accommodate the existing medical market demand.  When and how this will occur is yet to be seen.

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