Highly regulated industries often experience changes to their rules governing how they do business and the marijuana industry is no exception. Washington State seems to have nearly monthly rule changes that can impact how cannabis companies conduct business. Oftentimes, licensees and stakeholders aren’t even aware of rule revisions until they receive an administrative notice of violation. Furthermore, the Washington Liquor and Cannabis Board (the “Board”) sometimes interprets its rules differently than licensees, and that can be the difference between a violation or compliance.
In an effort to help licensees keep up to date, we’ve compiled a list of five recent Washington State cannabis rules you should know about but may not:
- You have to apply for a retail marijuana license by March 31. With the passage of Senate Bill 5052, the Board increased the state-wide number of licenses from 334 to 556 and it increased the number of licenses allotted to certain cities and counties. The Board also re-opened the retail license window (which it hadn’t done since the fall/winter of 2013). Stakeholders originally believed the Board would leave the retail window open indefinitely, but this month they made clear that they will in fact be closing it on March 31. This means you must get your application in by that date.
- Most of Western Washington is already closed for retail marijuana applications. As a result of the priority licensing system established by SB 5052, there’s been a rush for licensees to secure real estate and get their retail applications into the Board as soon as possible. Since there’s no longer a retail lottery, retail licensing has become a race to the finish line, with the finish line being final inspection of a proposed storefront to confirm that it meets Board standards. The Board has already shut down retail licensing in multiple Western Washington cities and counties where the number of applicants exceeds the number of licenses available. Seattle was one of the first cities to be closed by the Board, and the Board reported that 29 cities and counties have already been closed as of March 7. The limited license situation has created issues for late filers and for those existing licensees wanting to re-locate from jurisdictions with bans that show no signs of being repealed.
- No more vendor parties by producer/processor licensees for retail licensees. In a bulletin released by the Board back in January regarding permissible licensee conduct in relation to “money’s worth” and financial agreements between licensees, the Board announced that producer/processor licensees cannot host event parties for retail licensees since such parties amount to “a producer or processor activity that could influence the retailer [and, ultimately, consumers].” The bulletin states that “under no circumstance shall a producer or processor (non-retailer) give or lend money, items or services to a retailer. This act may be perceived as undue influence or obtaining preferential treatment over another producer or processor” and examples of prohibited items and services include the following (among others):
- Producer or processor creating a second company to give away or sell items at below true market value to a retailer
- Producer or processor having or sponsoring events (e.g., parties for licensees or employees of a retailer)
- Incentive programs (prizes or cash for selling processor’s items)
- Processors promoting their product on the premises of a retailer
- Negotiating any discount for customers of processor’s product
- The Board hasn’t yet allowed for participation of out-of-state financiers. Yes, the Board was considering allowing out-of-state financiers to participate in Washington’s cannabis industry. And yes, the Board even prepared some draft rules regarding the same. Those rules though seem to only permit out-of-state lending, not out-of-state ownership or investment in a licensed cannabis business. Regardless, the Board has pushed back the vote on these proposed rules at least once and it finally opted not to adopt any of the proposed rules, but to supplement those rules to accommodate “requested revisions” by the public. So as we sit here right now, we can all continue holding our breath on out-of-state financing because the Board hasn’t even supplemented the financier rules to allow for it. If you want to own or invest in a cannabis business as an out-of-stater, Oregon is by far the best state for that and that is where our clients are going. For more on Oregon’s by now legendarily liberal non-resident investment programs, check out Oregon Opens Its Cannabis Industry to Non-Residents. As you would imagine, our Portland Office is keeping mighty busy these days, and that includes its representing Washington cannabis companies looking to expand one state South.
- You can now tip your bud tender. Those in the production and processing world may not even know or care about this particular tidbit since it doesn’t really affect them, but retailers and bud tenders alike should be pleased. Just like you can tip your favorite barista for a great latte, you can now tip your bud tender. The Board previously interpreted its rules to prohibit tipping for fear licensees would use tips to try to get around tax laws and regulations by treating them separate from taxable sales. But in an enforcement bulletin to licensees and stakeholders this month, the Board stated the following:
Effective immediately, customer tipping is now an allowable practice in licensed retail marijuana stores. However, tipping cannot be required or a condition of sale, nor can it be linked to the price of the product to avoid tax obligations. If a licensee allows tipping for their staff, licensees are reminded that there may be business or employee taxes associated with tips received.
The times they are a changin….