The Hazy Future of Medical Marijuana

Unable to continue waiting for the state to provide regulatory guidance, some local governments are considering taking action locally, in an effort to control the medical marijuana industry. Both Seattle and Tacoma recently proposed radical changes to medical marijuana sales in their cities. Seattle’s Proposed Marijuana Regulatory License would put in place a secondary regulatory system for collective gardens and retailers, and Tacoma’s marijuana enforcement plan will end medical sales except through state-licensed recreational shops. These changes come as no surprise, as current limited regulation of medical marijuana is an increasing cause of concern for the public and for local law enforcement.

Due to the complications of implementing the original medical marijuana legislation, there are few controls on the location of stores, their density, the quality of the product, the validity of patient authorizations, and the legitimacy of the business.

The current system has been an interesting demonstration of the rules of a free marketplace, but it has also created an atmosphere of questionable legality. Keeping marijuana business operations fully legal is a challenge, due to vague or inconsistent information from state and federal agencies. In comparison to the recreational system’s heavily regulated licensing, tracking, and taxation, it becomes obvious that state legislators will want to make some changes.

Lawmakers have recognized that a truly successful recreational market depends upon the state reconciling the medical market’s disparities in labeling, taxation, traceability, quality control, and allowable locations. During the 2014 legislative session, the state senate and house debated several bills addressing regulation of medical recreational marijuana, but none made much progress.

One of the bills that received the most attention last year, SB 6178, sponsored by Jeanne Kohl-Welles, addressed many of the problems of the existing medical marijuana system and proposed more closely aligning the medical and recreational systems. SB 6178 was reviewed by the State Senate but never made it out of the Ways and Means Committee last year. 

Senator Kohl-Welles will propose a new bill for the upcoming 2015 session. The most notable provisions of her bill will:

• Permit home grows (6 plants) for all adults over 21
• Simplify taxation to a single retail-level tax, eliminating production/processing taxes and eligible for deduction from federal taxes
• Eliminate Collective Gardens by August 1, 2016
• Create a state registry for medical marijuana patients, to provide tax exemptions and arrest protection
• Support training, standards, and an endorsement option for health care providers
• Allow delivery of marijuana products
• Facilitate research on and about marijuana use

It is vital to a healthy industry that changes in regulation come from the state, rather than a patchwork of changeable regulations in local jurisdictions. The people of Washington State need clear guidance regarding the possession and use of this newly legal product, and that guidance should come from the state or federal level. Although the desire for local control is understandable, local lawmakers should regard their changes as temporary, and plan to fully reconsider the situation once new state legislation is in place.

What's Happening Next Door?

With passage of marijuana legalization initiatives in our neighboring states of Oregon and Alaska, current marijuana businesses owners in Washington are beginning to dream big. It’s worth asking the question: Can a Washington business expand to Oregon or Alaska?

At present, the answer is…Probably. 

Neither Oregon’s Measure 91 nor Alaska’s Ballot Measure 2 requires residency to run a marijuana business.   However, as in Washington and Colorado, the state liquor agencies will be tasked with licensing and regulating marijuana production and sales.  It is possible that the Oregon Liquor Control Commission (OLCC) or the Alaska Alcoholic Beverage Control Board (ABC Board) could enact different rules than we’d expect, based on the wording of the measures voted into law during the general election.   

It will become legal to possess & cultivate limited quantities of marijuana in Alaska on February 26, 2015 (estimating 90 days from certification of election results); and in Oregon on July 1, 2015.  Alaska’s ABC Board has until November 28, 2015 to adopt regulations, including an application timeline. The OLCC is required to begin accepting applications no later than January 4, 2016.

The conversation about taxation in Washington vs. Colorado seems to have had a beneficial effect on plans in Oregon and Alaska.  Although both plan additional excise taxes, the overall taxation rate will be considerably less than that in Washington.  Alaskan producers will pay a flat $50/ounce excise tax on product sold to producers or retailers, and Oregon’s producers will pay a tiered excise tax of $35/ounce for flower, $10/ounce for leaf, and $5 for each immature plant. Since Oregon already doesn't charge a state sales tax, this means that businesses within driving distance of Oregon will likely be disadvantaged if they don’t expand to the new market.

Next, as long as marijuana continues to be federally illegal, there are stiff penalties for transporting product across state lines.  The federal restrictions also apply to paraphernalia, which by definition includes processing equipment.  Transport to Alaska would face the same interstate transportation issues, while also having the additional risk of crossing international borders. 

Nevertheless, opportunities beckon. Having learned through trial-and-error with the process in Washington, our state’s business owners are in a great position to leverage their knowledge and expertise in these new markets.

Trademarks for Marijuana Products

Following Maureen Dowd’s experience with edibles in Colorado, we’ve seen greater national interest in the Colorado marijuana market.  A larger audience brings greater scrutiny – resulting in July’s last-minute changes to the LCB’s rules regarding edibles, and bringing greater attention to the importance of the trademark in building a strong brand.  The first trademark infringement cases involving marijuana businesses surfaced this past spring in Colorado, including the Hershey’s suit, and the MED-a-Mint conflict.  These cases emphasize two different points:  first, the infringement of existing registered trademarks, and second, the role of a properly registered trademark in protecting a business’ interests in a contractual agreement.

Businesses in an emerging industry are in a position to experience even greater profit from time spent developing solid branding.  A good brand not only helps drive a product’s sales, but builds a platform for long-term growth.  Registering a trademark gives a business the means to protect its exclusive use of a brand, and protect its product’s market share from confusion with similar products.  A trademark can consist of words, names, symbols, devices, colors used in a distinguishing way, brands, logos, even audible signs, fragrances, or three-dimensional signs.  

If a trademark is being improperly used, a business may file a lawsuit to accuse another business of infringing upon their exclusive right to its use.  TinctureBelle, the defendant in the Hershey case, surely knew that their Ganja Joy and other chocolate bars were a bit close to the mark, but chose to produce these products as novelty items.  This only became an issue when the products became more visible through media coverage of Colorado’s emerging recreational market.  TinctureBelle changed their packaging, but a little too late to avoid Hershey’s suit.  We expect to see similar cases as other novelty items become more widely (and publicly) available through retail stores in Washington.   

The MED-a-mint case illustrates a similar use of the trademark to protect a brand.  When the contracted manufacturer changed the labeling and packaging of the MED-a-mint product, the business owner determined that the brand was being misrepresented.  Citing their registered trademark, the company filed a suit claiming a violation of contract that was causing damage to the company’s brand.

When preparing to market a new product or brand, a business will likely want to pursue a trademark. We strongly recommend seeking an attorney’s input during this process, and the KB Law Group provides this service for our clients.

The trademark search is among the first steps, to ensure that no similar trademark is currently pending or registered in the federal or state databases, or in established common law use.  Once a mark’s uniqueness is established, a business can either reserve the right to register it, or begin the process of filing for registration.  In most cases, a business must be actively using a mark prior to filing for its registration:  it must be printed on signs, marketing materials, packaging, or business correspondence.

Because of marijuana’s status as a federally controlled substance, federal trademark protections are not available through the United States Patent & Trademark Office (USPTO).  However, ancillary businesses that provide merchandising or produce non-marijuana products may be able to obtain federal trademarks. 

In order to protect a proprietary name or image, marijuana businesses may only acquire trademarks on a state-by-state basis, through the Secretary of State’s office.  Businesses wanting to secure a trademark over a larger geographical area will want to consider applying for trademarks in multiple states – which means vetting the desired name and image in all target states before developing the brand or submitting the first application.  As Alaska and Oregon prepare to vote on recreational marijuana this November, securing a regional (i.e. multiple state) trademark could be even more important.

Marijuana Advertising

We’ve all seen the billboards in Seattle, advertising for cannabis products. Given the guidelines provided in the I-502 legislation, are these billboards legal? 

Most current cannabis advertising is for medical – and not retail – products.  Requirements are not consistent across the marijuana industry, although a number of bills were under consideration during the 2014 session of Washington’s state legislature.  Until decisions are made regarding the future of medical marijuana in Washington State, marijuana advertisements will continue to have differing restrictions. Clearly this is a source of confusion for new I-502 licensed recreational marijuana businesses.

Not all advertising is prohibited for recreational marijuana businesses; it’s just subject to greater limitations than medical marijuana products. Recreational advertisements must not:

• Be false or misleading
• Promote over-consumption
• Make therapeutic claims
• Depict children or attempt to appeal to children
• Be within 1,000 feet of a sensitive area (see the locational rules)
• Be posted in or on public property, including public transit vehicles or shelters

And finally, all recreational marijuana product advertisements must include the standard four marijuana health disclaimers:

This product has intoxicating effects and may be habit forming.
Marijuana can impair concentration, coordination, and judgment. Do not operate a vehicle or machinery under the influence of this drug.
There may be health risks associated with consumption of this product.
For use only by adults twenty-one and older. Keep out of the reach of children. 

Permitted Advertisements

Online advertising – from product websites to banner ads on industry pages – is allowed, though online sales are not. Social media – from dominant players like Facebook or Twitter, to industry-specific marijuana finders – are all acceptable forms of connecting with customers.  Use of YouTube or other video sharing websites to post promotional videos is expressly permitted by the LCB, but businesses are cautioned to avoid material that would appeal to younger viewers, and to exclude viewers under the age of 21 if possible.  This translates to an extra caution for posting on YouTube, which permits age restriction to 18+ only.

Businesses must perform due diligence to ensure they take all precautions to limit online traffic to adults, and to deter minors. Easy steps are to add an age verification key to a business website, and to monitor the site of origin for incoming traffic.  Any online advertising must also contain the standard four marijuana health disclaimers, as detailed above.

Traditional advertising options can be complicated, but are generally allowed.  Stores may include flyers or brochures with a purchase, and supply customers with branded shopping bags. Ads in newspapers or other printed media intended for adults are fine. Direct mail and e-mail marketing are allowed, though they may not feature coupons or discounts. Broadcast advertisements on radio or TV are theoretically permitted, though they might be questionable under current FCC regulations, and near-impossible to segregate from a minor audience.  Sign wavers wearing provocative or eye-catching costumes may be permitted – depending on local ordinances – but businesses should take care, once again, to make sure they are not appealing to children and that  mobile advertisements do not encroach on the 1,000 foot rule. 

Merchandising

Marijuana businesses not only want to promote their brands, but also profit from promotional sales.  The problem is this:  the rules for marijuana producers, processors, and retailers (WAC 314-55-075, 314-55-077, 314-55-079) expressly prohibit the sale of anything other than marijuana, and, in the case of retailers, marijuana and marijuana paraphernalia. The solution? Many licensed marijuana businesses have created and licensed a separate merchandising company with Washington’s Secretary of State. This secondary company does not seek to produce or sell marijuana products through the Liquor Control Board, but exists solely to produce and sell materials that promote a licensed marijuana business.  These merchandising products, mostly apparel and souvenirs such as t-shirts, hats, bags, glasses, coasters, etc., may not be sold or given away in a recreational retail store, but they can be sold at non-marijuana stores or provided to bars or other adult venues.  

Because this arrangement is complicated, we must emphasize the following:
Licensed marijuana retailers are not allowed to sell anything but marijuana products and paraphernalia. Paraphenalia is in a class of its own:  it may only be sold by retail stores, and it is the only non-marijuana swag that retailers can sell.

New York Times Speaks Up for Legalization

We were excited to see the New York Times’ endorsement of legal marijuana in their Sunday Editorial Repeal Prohibition, Again.  In its brief position statement, the NYT Editorial Board boldly states:  “It has been more than 40 years since Congress passed the current ban on marijuana, inflicting great harm on society just to prohibit a substance far less dangerous than alcohol.”  The article advocates legalization on the federal level, giving states the responsibility to regulate marijuana.

Supporting their argument, the editorial board cites to the systemic racial inequality in marijuana prosecution and criminal enforcement (unduly affecting young black men).  The article also discredits the unsubstantiated concerns that marijuana is a "gateway" drug and acknowledges that addiction and dependency of marijuana pales in comparison to alcohol and tobacco.

The newspaper plans to print six articles addressing specific issues pertinent to the legalization of marijuana, including Sunday’s Let States Decide on Marijuana and The Injustice of Marijuana Arrests.

First Licenses Issued for Retail Marijuana Shops

The wait is almost over. Early this morning the Washington State Liquor Control Board (WSLCB) provided licenses to the first small group of 24 retail marijuana stores. It's been six long months for these applicants, who could open their doors and begin selling marijuana for recreational use as early as tomorrow, July 8, 2014. This will mark the first time that adults can legally purchase marijuana grown, processed, and sold by state-licensed businesses under I-502. (Keep in mind that marijuana remains a Schedule I controlled substance, subject to federal prosecution and civil forfeiture.) 

First, a little background: the Washington State Liquor Control Board (WSLCB) has been reviewing retail applicants based on the results of April’s retail license lottery (see map). The board announced its intention to issue retail licenses in groups of 10-30 beginning this week. We expect to see licenses issued for approximately another hundred stores during the next 30-60 days, and the remainder sometime in the fall.

The total number will likely fall short of the WSLCB's proposed 334 stores statewide. This discrepancy is due to a number of factors, including a lack of applicants in some jurisdictions and local zoning prohibitions. More details to follow.

Where will the first stores open?
On April 2, 2014 the WSLCB stated:  “The initial retail licenses will be issued in batches (10-20) in the most populous areas.”  First reports indicate 14 stores in western Washington and 10 stores in the eastern part of the state. By WSLCB rules, retail stores may be open 8:00 am – 12:00 midnight.

Why are there so few stores (and when will there be one in my neighborhood?)
The allocation of only 334 retail stores across the state was based on population and demand estimates prepared by BOTEC, a consulting team hired by the WSLCB shortly after I-502 passed.

Unfortunately, local zoning moratoriums and permanent bans significantly decrease the public's access to state-licensed, legal marijuana.  If you are curious about whether your own local government has banned marijuana or enacted a temporary zoning moratorium, a good place to start your search is the MRSC Marijuana Guide for Local Governments (although this page may not be up-to-date, since local marijuana zoning is changing weekly).

Note that although a county (Pierce) may ban marijuana sales, such a ban may not apply within the municipal limits of a city in that county (Tacoma).

How many stores will there be?
The WSLCB limited the state to 334 retail licenses, although we may have significantly less than that when all is said and done.  It's important to understand that the 334 licenses were allocated to specific cities or counties-at-large, so presumably, if a city institutes a ban, any licenses allocated to it would be removed from the equation, reducing the state-wide count.

Taking into account the current permanent and temporary bans, as well as jursidictions which failed to attract an initial applicant, we estimate the state-wide number to be closer to 250 retail stores.  This could change, however, if local jurisdictions lift their temporary bans or the WSLCB readjusts the allocation of licenses by jursidiction.

How much will marijuana cost?
Current prices for medical marijuana are roughly $8-12 per gram. General consensus is that when stores open, the starting price for recreational marijuana will be $12-25 per gram. This takes into account the additional overhead, excise taxes, and expected product shortages during the first year of sales.

Shortages?
On average, it takes 3-4 months to bring a crop to harvest, and the first producer’s license was issued on March 4, 2014. Do the math. This recent AP story about testing labs provides some data about the state-wide harvest so far. As of June 28, eleven producers had harvested and submitted samples for testing. The WSLCB has now licensed 79 producers, so the production rates will increase, in time.

Will they sell out?
Most likely.

How much marijuana can I buy?
Under Washington State Law, individuals over 21 years of age may buy up to one ounce of marijuana, 16 ounces of solid marijuana-infused product, 72 ounces of infused liquid, or 7 grams of concentrates. Sales of amounts in excess of transaction limits can result in the retailer’s immediate loss of license.

When the stores open on July 8, only usable marijuana will be available, as no extracted or infused products have been approved.

How much marijuana can I have on me?
An individual 21 years or older may possess no more than one ounce in Washington state. You may not take it over the border to Canada. Possessing more than one ounce may result in jail and fines.

An individual providing marijuana to an underage person may be punished with up to ten years imprisonment and up to $10,000 fine under state law. Penalty for a retailer selling to an underage person is a 10-day suspension or $2,500 fine (first offense).

Can I smoke it or use it anywhere I want?
Opening a package of marijuana or consuming marijuana within view of the public is a civil infraction and you may receive a ticket and a fine of up to $100. Individuals consuming marijuana should be on their own property, or on the property of someone who permits consumption.

What are the limits for legal driving?
If an officer suspects someone of driving impaired, he may obtain a search warrant for a blood sample. Drivers with blood tests that show more than 5 nanograms of active THC per milliliter of whole blood will be charged with a DUI – regardless of the driver’s performance on other sobriety tests.

One study compared the 5 nanogram THC limit to an equivalent 0.05 percent blood-alcohol level, less than the state DUI limit for alcohol in Washington. In short, do not drive if you are even slightly impaired.