washington residency marijuana constitutional
Could definitely be unconstitutional.

We think it is worth taking another look at whether Washington’s strict residency requirement is constitutional. Since Washington first licensed marijuana businesses in 2014, we have wondered if anyone would be willing to bear the expenses of that particular challenge. And to date, there are no Washington appellate or federal legal decisions determining the constitutionality of the residency requirement. If there were a challenge, Washington would have a tough time defending the constitutionality of the law.

There are two important constitutional concept here: the Dormant Commerce Clause (the DCC) and the Privileges and Immunities Clause (the PIC). We first wrote about one of these, the DCC, three years ago. The DCC is a body of law (all made by judges) that seeks to enforce free-trade rules among the states. The idea is that Congress has the sole authority to regulate interstate commerce, and state laws that blatantly interfere with interstate commerce are potentially unconstitutional. Our analysis of this issue is largely the same as it was in that blog post three years ago. To determine if a law violates the DCC, one first determines whether the law interferes with interstate commerce. Washington’s residency restriction likely does so because it stops out-of-state participants from engaging in commerce in Washington. If a state law discriminates against out of state residents, it is very likely unconstitutional. It can only survive if the state can show that the law is the least restrictive means by which it can achieve a non-protectionist purpose. In the case of Washington’s marijuana residency requirement, there are lots of other states without such a requirement, and they are doing fine.

It looks like the book could be open and shut with the DCC, but people are still hesitant to bring that case. The DCC is tough to understand in practice: It’s a constitutional restriction by inference and counterfactual. So if law by logical proof isn’t your thing, the PIC provides an alternative compelling constitutional argument that Washington’s residency restriction would lose a court battle. The PIC —  Article IV, Section 2, Clause 1 of the U.S. Constitution — says: “The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.” The PIC seeks to prevent discrimination by one state against another state’s residents. In addition to protecting civil liberties, the PIC also protects fundamental economic interests.

The weakness in the PIC arguments is that the right to own a marijuana business may not be considered a fundamental economic right that the PIC protects. In past cases, the PIC has successfully knocked out state residency requirements for attorney bar licensure and for employment, but the PIC has failed to stop a state from only giving hunting licenses to its residents. Cases seem to say that commercial activity, as opposed to recreational, is fundamental, but it would be reasonable for the discriminating state to argue that the right to own a federally illegal marijuana business cannot, by definition, be fundamental enough to get this constitutional protection.

The federal illegality of marijuana, of course, is the elephant in the room. There seems to be a misconception that federal courts would never protect a would-be marijuana business owner in a legal battle with the state. That fear, however, is a misreading of constitutional law. Marijuana’s illegality does get in the way of a lot of general legal enforcement. Contracts with an illegal subject matter can be found void as a matter of law. Federal bankruptcy courts will not process marijuana company filings because they cannot appoint a trustee to manage marijuana assets. And in cases where parties seek injunctive relief, courts can use the “clean hands” doctrine to say that they will not issue injunctions to help marijuana businesses because those businesses have not come to the court with sufficiently “clean hands” to receive the benefit of equitable rulings.

However, the Constitution is not a contract or an equitable ruling. The Constitution protects us from state and federal overreach in all circumstances, regardless of what we have done and regardless of what we are doing. To put it another way, let’s say that Washington had a law that said women not allowed to own a marijuana business. Does anyone think that a federal court would not overturn that law? Of course it would. It doesn’t matter that marijuana is federally illegal; the state cannot violate the Constitution with illegal preferences. Similarly, both the DCC and the PIC are constitutional protections. A litigant against the state of Washington seeking to overturn the residency requirement would win or lose on the merits. Even a federal court would not throw out a case simply because marijuana businesses were involved.

WSLCB washington cannabis
WSLCB seems to want it both ways on “residency.”

Despite lobbying efforts to the contrary, Washington has maintained its strict state residency requirement for Washington cannabis business owners. If a person wants to own 0.001% of a cannabis business, the Washington State Liquor and Cannabis Board (WSLCB) requires that person to be a Washington resident and to go through about 1,000 hoops before it authorizes the licensed cannabis business to issue that ownership interest. In general, cash-starved producer-processors looking for investment and out-of-state investors have pushed for the law to change, while more established retailers and certain producer-processors prefer the lack of out-of-state competition. The residency issue is resonating in Olympia, with many legislators openly discussing lifting or altering the state restriction on out-of-state ownership.

While the overall topic of the residency requirement is often discussed, one issue that doesn’t get as much attention is how the WSLCB is currently defining residency. And that’s because they don’t— at least not directly. The WSLCB’s marijuana regulations define the term “residence” as a place where a person physically resides, but that is only in the context of the rule that marijuana licenses cannot be issued to businesses whose location is at a personal residence. The section talking about the residency requirement, WAC 314-55-120(10) uses the terms “resided” and “residency requirement,” but the rules do not define those terms.

Neither does RCW 69.50, the section of Washington’s legislative code that contains its statutes related to regulated marijuana businesses. RCW 69.50.331(1)(b)(ii) contains the legislative requirement that someone must have “lawfully resided in the state for at least six months prior to applying” for a marijuana business license. Whether the drafters of that section meant “resided in Washington without breaking any laws” or “would be considered resident of Washington as a matter of law”, we cannot really say. The statute does not contain any significant guidance on what does and does not constitute residency.

When Washington first opened for licensing, the interpretation of these sections was key. Back then, in 2013 and 2014, the residency requirement was only three months, and entrepreneurs looking to take advantage of the market had been trying to figure out the least that they could do to establish residency in order to qualify for the new licenses. When people asked the WSLCB what constituted residency, they were deferred to other state agencies that had defined residency. I personally have been on multiple phone calls with WSLCB investigators where they deferred to the Department of Revenue’s (DOR) definition of residency.

The problem with deference to the Department of Revenue is that the WSLCB generally acts like it wants a narrow definition of residency, whereas DOR wants a broad definition of residency. DOR wants people to be considered residents because that means that they owe sales tax and/or use tax on their purchases. Even the WSLCB’s old rules FAQ still has a link (albeit a broken one) to this Access Washington webpage saying that there are many ways that one can show that he or she is a Washington resident, including registering to vote and obtaining a Washington driver’s license.

Although it provides resources that make it seem like it is easy to prove residency, the WSLCB’s enforcement officers and investigators continue to treat residency as a strict requirement that one physically inhabit Washington virtually every day of the year. We have an administrative case happening right now where the WSLCB claims that our client is not a Washington resident, even though that person owns residential property in Washington and gets all of his or her mail there, is registered to vote in Washington, and maintains a Washington drivers license (and no other state licenses or IDs). They can’t point to a single written definition of residency that this client violates, but they continue to fight on this point.

This isn’t all about one case, one client, or even one issue. The WSLCB is showing time and time again that it likes to live in the zone of vaguely written or non-existent regulations and stringent enforcement of the WSLCB’s interpretations of those vaguely written or non-existent rules. Unless you assume that the WSLCB has malicious intentions in drafting and enforcing its rules in this way (which we do not assume), it does not make sense that they would not adopt a stringent definition of residency if they want to enforce it that way. But until the WSLCB amends its rules by adopting an actual definition of residency, it will continue looking like it is speaking out of both sides of its mouth.

washington family medical leave cannabis

The Washington Family and Medical Leave Act (“WFMLA”) is getting some major changes beginning in 2019. Why does this matter to Washington cannabis businesses? Because all of those businesses, regardless of type or size, will be required to collect and pay premiums under the revised law beginning January 1. These companies will also be required to provide wage replacement for eligible employees beginning in 2020.

Last year, the Washington legislature became just the fifth state to approve paid family and medical leave. Paid family and medical leave is a statewide insurance program that will provide eligible employees with partial wage replacement while on qualifying leave. Paid family and medical leave will be paid from a state fund, funded by premiums collected by employers. Premium collection begins January 1, 2019. The premium is equal to 4% of an employee’s wages, and the burden is shared between the employer and the employee.

Like with FICA and federal income tax, the employer is responsible for collecting the employee’s portion of WFMLA tax through payroll. If you want to be a model cannabis business, the law allows employers to cover the employee portion of the premium. Note that employers with less than 50 employees are not required to pay their portion of premium, but must still collect the employee’s portion and remit it to the state.

Employees become eligible for paid family leave once they have worked 820 hours for a Washington-based employer during the previous year. Employees can take paid leave for their own medical condition, bonding with a child, caring for family members, and certain military-related events. Eligible employees can receive up to 12 weeks of wage replacement with a weekly minimum of $100 and a weekly maximum of $1,000. The amount of wage replacement the employee receives is based on the employee’s earned wages, the state median income, and other factors. Employees can begin applying for benefits on January 1, 2020.

But what about the paid sick leave marijuana employers are required to provide in Washington? The WFMLA does not affect the requirement for employers to provide paid sick leave to employees in Washington.  Paid sick leave, unlike paid medical and family leave, does not require the payment of premiums. Further, employees accrue at least one hour of paid sick leave for every 40 hours worked under the Washington sick leave law.

Cannabis businesses should get ready for the new premium assessments beginning January 1, 2019, and budget for those new costs now. If you’re worried about compliance, our cannabis business and employment attorneys here at Harris Bricken can help you formulate a plan to ensure you comply with WFMLA and related laws.

washington amnesty WSLCB
Coming soon to WSLCB.

We recently wrote about the Washington State Liquor and Cannabis Board’s consideration of a marijuana licensee amnesty program for licensees with undisclosed true parties of interest a couple of weeks ago. In that post, though we criticized the WSLCB for not doing more to put marijuana licensees in a position to succeed, we didn’t have much to say about the amnesty program itself. Other than the fact that the board was discussing offering leniency to companies with undisclosed true parties of interest, not many other details had emerged.

Since then, a few more details have emerged, including a draft notice to Washington marijuana stakeholders announcing the program. It is important to note that as of the writing of this post, the leniency/amnesty program has not yet been finalized, and details are subject to change. That said, here is what is proposed so far:

The program is targeted at licensees that have owners or financiers that have not been disclosed to or approved by the WSLCB. Applications for amnesty/leniency will be denied when:

  1. Owners do not reside in Washington;
  2. Financiers are not U.S. residents;
  3. Owners or financiers have disqualifying criminal history;
  4. Licensees are currently under investigation for hidden ownership;
  5. Entity and/or principal within entity exceeds marijuana licenses allowed; or
  6. Entity and/or principal has interest in cross-tiered marijuana licensee (can’t own both a retailer and a producer/processor).

Licensees will have one month, starting as early as August 1, to apply to the WSLCB on a form provided by the WSLCB for the leniency program. Once the WSLCB receives the form and contacts the licensee there will be a seven day period to complete the initial interview and another fourteen day period to provide all required documentation for all prior undisclosed true parties of interest or financiers.

The WSLCB defines ownership broadly. A legal owner of any shares or membership interest in a licensed business counts, but so do many other business relationships. The WSLCB currently mandates that spouses, even for marriages after initial licensing, be disclosed and vetted by the WSLCB. They also consider anyone who has the right to receive any percentage of the gross or net profits from a licensed business. The WSLCB still tells licensees that any payment of sales commissions to sales agents violates true party of interest rules, despite an administrative law judge ruling otherwise and the WSLCB signing off on that ruling a couple of years ago. Trademark licenses and consulting agreements can create ownership. The WSLCB has still not engaged in substantive rulemaking to implement RCW 69.50.395 that specifically allows for trademark licenses. Instead, they have developed an ad hoc approval process for trademark agreements, where non-attorneys at the WSLCB make judgment calls about whether standard trademark license provisions do or do not create the type of “control” that would render someone a true party of interest under WAC 314-55-035.

Our experience makes us think that there are a lot of marijuana businesses that have hidden ownership problems. The majority of them are not bad actors – they are simply people who either don’t understand that an agreement they signed technically creates an ownership interest as the WSLCB sees it or they have done things in the wrong order, transferring ownership before receiving WSLCB approval. So it is welcome that the WSLCB is moving along on potentially offering amnesty/leniency to the these businesses instead of shutting them down. While that doesn’t fix many of the underlying issues that we have been pointing out, it is still a band-aid that will prevent catastrophe for companies smart enough to take advantage of it.

We’ll post again as soon as we get word that this program is due to go live. In the meantime, check out the following for some recent thoughts on WSLCB program administration and enforcement.

Washington State Cannabis Lawyer
Talking with Washington State cannabis enforcement officers is like playing with fire

Many of my firm’s recent Washington State cannabis enforcement cases contain a commonality. During the investigation stage, Washington State Liquor and Cannabis Board (WSLCB) enforcement officers tell licensees that their main goal is to achieve compliance. They say they aren’t looking to get anyone’s licenses cancelled — they are just trying to get a full picture so they can help licensees come into compliance with the rules. As we have stated in prior posts, many seemingly benign actions can give rise to license cancellation. But despite these assurances, licensees often find themselves blindsided by cancellation notices after they thought they were participating in a project with their officers to achieve compliance. When the licensees press their enforcement officers, the officers blame “politics” at the WSCLB offices in Olympia. It’s as though the WSLCB enforcement officers are playing the role of the car salesman going upstairs to fight for a price reduction only to be rebuffed by faceless management.

What is really going on here? As with everything else in the cannabis industry, it’s complicated. One thing to remember is that there is a real split in the WSLCB between its licensing division and its enforcement division. “Licensing” people are your standard bureaucrats, throwing up a varying array of obstacles to opening a cannabis business while assessing whether a businessperson and his or her plans merit a license to produce, process, or sell marijuana. “Enforcement” people are, for lack of a better word, cannabis cops.

Being cops, they see their role as rooting out activity contrary to law, and they will portray themselves however they deem necessary to get as much information as possible. Their behavior can range from be-your-buddy good cops to intimidating and threatening bad cops. The same officer often finds himself or herself playing both roles in some circumstances all geared to getting licensees to reveal behavior that may violate the rules. Institutionally, police forces often pressure their officers to continuously find bad behavior and officers that aren’t reporting enough violations face consequences at work for falling behind. We would be naïve to think WSLCB officers don’t face these same internal pressures.

The status of WSLCB officers as regulatory enforcement police puts licensees in a tough position. Most of the public knows that if they are accused of a crime by a regular police force, they shouldn’t say anything and should ask to speak with an attorney. But there is a fundamental difference between criminal enforcement and regulatory enforcement. The right to remain silent and the right to speak with police only with an attorney present are criminal rights. Marijuana business licenses, however, are privilege licenses. If you don’t toe the line, regulators can take that license away. For example, WAC 314-55-050(7) says that the WSLCB can cancel a marijuana license if a licensee denies a WSLCB enforcement officer access to any place where licensed activity takes place or fails to produce any required record licensees are supposed to keep.

Licensees need to keep both of these fundamental facts in their minds when dealing with WSLCB enforcement officers. The licensee has to understand that regardless of what they say, the goal of the WSLCB officer is to find bad acts and either fine the licensee or shut them down. But the licensee cannot ignore or shut out information requests from enforcement officers. Strategically, walking this tight rope requires licensees answer every question from an enforcement officer honestly and never lie, while also avoiding answering more than is asked. It’s not always possible to have an attorney present when dealing with an enforcement officer, but lawyers — especially those experienced in dealing with the WSLCB do help in these situations. Primarily, they know how to consistently frame a business’s activities as compliant within the framework of the rules (assuming the activity really is arguably compliant). Licensees often get themselves into trouble when talking to enforcement officers without an attorney present because they forget the fundamental truth — WSLCB enforcement officers are looking for a reason to submit a violation notice.

If the WSLCB wanted, it could institute a more collaborative relationship between officers and cannabis licensees. At WSLCB meetings, the WSLCB’s enforcement and licensing directors often make it sound as though the goal of enforcement personnel is to achieve compliance more than to shut down cannabis businesses. Actions to date, however, don’t back that up. So long as it appears that issuing violation notices is the primary goal of WSLCB enforcement officers, cannabis licensees need to approach each interaction with an enforcement officer as potentially adversarial because to do otherwise is to put your cannabis license at risk.

WSLCB cannabis marijuana
The WSLCB approach is not working so well.

The Washington State Liquor and Cannabis Board (WSLCB) may finally be noticing that its current treatment of “true party of interest” violations is neither just nor sustainable. During an extended conversation at its monthly executive management team meeting in June, the WSLCB discussed potentially adopting a hidden ownership amnesty program. Basically, any existing businesses that had mistakenly created a true party of interest relationship would have a limited time to come forward and declare any owners or other true parties of interest in licensed marijuana businesses that had not been disclosed and vetted in the past. The licensee would then be able to get the person vetted, though some penalty other than license cancellation would potentially still be on the table.

The details are not set, and the WSLCB executive team is going to continue meeting and discussing the issue over the coming months. For those licensees in the middle of investigations or regulatory hearings with the WSLCB, there’s not much hope to pull from this. Even if the WSLCB moved with lightning speed to adopt something, the agency was clear that it would not avail anyone currently undergoing a formal investigation or violation hearing.

That the WSLCB is discussing the topic of leniency at all indicates that they are cognizant of problems with current regulations and enforcement, though their idea of an amnesty or leniency program won’t do anything to solve the underlying issues. The foremost issue right now is that the timing of getting financing approved doesn’t work. The WSLCB currently demands that all money contributed to a licensed business be approved prior to it being spent on behalf of the business. The approval process for capital can take months, even if the capital contributors have already been approved as owners or financiers of the business in the past. But the types of emergencies that require short-term capital infusions tend not to wait months for regulators to approve. Businesses are forced to violate a rule by either having current owners contribute new capital or having outsiders provide financing prior to getting WSLCB approval.

There are plenty of solutions to the financier predicament that the WSLCB could adopt. They could allow for after-the-fact vetting of certain types of loans. They could modernize and streamline their financial approval process. They could keep the exact same system and just hire more people so that new funds could get investigated and cleared immediately. Any move to temporarily allow for relaxed penalties for regulatory violators to come forward isn’t necessarily a bad thing, but the same problem will continue again and again. Academically speaking, the WSLCB is applying an over-inclusive rule to business actions that range from willfully criminal to entirely benign. This over-inclusive application of the law “makes regulatory unreasonableness not an occasional weakness but a pervasive problem.”[1]

[1] Quote is from the first full paragraph on page 40 of this linked article — the WSLCB should read it and redesign their enforcement structure.

The WSLCB’s current investigative and enforcement strategy feels targeted at unlucky businesses that have made mistakes. This is part of why their trigger-happy nature regarding license cancellation is so frustrating. Two of the cancellation cases that my law firm is currently working on have come because of voluntary disclosure of information by a licensee. There certainly are bad actors in the marijuana industry that are intentionally defrauding the WSCLB and may well have ties to organized crime, but the WSLCB seems to leave those businesses alone. It is tough, challenging work to investigate illegal activity when the actors are working hard to cover up the illegal activity. It is much easier to go after the low-hanging fruit of licensees that are fully transparent about their activities.

Fundamentally, the WSLCB underestimates the deterrent effect of large monetary fines and underestimates the huge collateral damage that business shutdowns can create. If the WSLCB wants to create real compliance, it is going to need to make some more drastic changes than temporary amnesty/leniency programs.

washington cannabis LCB
More crucial than ever for Washington operators.

We have represented clients in regulatory violation cases inside and outside the cannabis industry for years. Of all the jurisdictions in which we work, the Washington State Liquor and Cannabis Board in 2018 is unique in its eagerness shut down businesses. In case after case against licensed producers and processors, the WSLCB seems determined to seek violations that could lead to license cancellation and is generally refusing to offer alternative penalties. Because so many of these cases are still pending, it is hard to go into too much detail, but the WSLCB’s actions in these cases indicate a desire to cull the number of licensed producer/processors.

For those producer/processors in Washington that aren’t currently being investigated for regulatory violations, the WSLCB’s current policy generates mixed reactions. When licenses were available for application in November and December 2013, thousands of businesses applied for the right to cultivate and process marijuana. As the market as matured, wholesale prices of marijuana have continued to fall, and the ability of licensees to maximize production has continued to increase. There is so much marijuana available on the market right now that it is hard for producer/processors to compete. Just having a license isn’t enough to run a profitable business, and many of the top performing producer/processors in the state are not generating the profits that most outsiders would assume.

At the same time, the types of violations that can cause the WSLCB to cancel a license and shut down a business are surprisingly easy to commit, even for dedicated compliant businesses. For example, let’s say that a licensed producer/processor has an unexpected bad month and doesn’t have enough money in the bank to make payroll. There isn’t any way for a licensee to get expedited approval of a cash infusion from the business’s owners If those owners contribute more of their own money before getting that approval, though, the WSLCB will still cancel the licenses. Or let’s say that a licensee enters into a licensing deal to manufacture branded products developed by another company. If the contract for that deal includes any terms that the WSLCB determines allow the licensor to exert too much control, they will cancel the license.

License cancellation is not innocuous. Marijuana business regulations bar a company from using a licensed location for business other than marijuana operations. Therefore, any type of license cancellation is really a death penalty for the business itself. These businesses employ anywhere between a few individuals and more than fifty people. Many of the employees are not the most employable in other industries either; legal cannabis jobs are the only thing standing between them and poverty.

And this is where it is clear that the WSLCB’s primary goal in cancelling licenses has to be to reduce the number of active licenses overall. Even in cases where the owner that is the “cause” of the regulatory violation has offered to transfer ownership interest in the business to a third party, the WSLCB still seems determined to cancel the licenses. They don’t seem to consider the effect that license cancellation has on innocent employees, landlords, investors, and contracting parties.

If you’re a licensed producer/processor in Washington (retailers seem to get more leeway), there’s not much you can do about this in the short term other than to stay compliant. There are certainly strategic alternatives that could engender better compliance among licensees, but it isn’t clear that compliance is the WSLCB’s current primary goal. Until the WSLCB starts accepting alternative penalties for certain seemingly innocuous violations for which they are authorized to cancel licenses, though, licensees will not receive the benefit of the doubt from the WSLCB. The correct attitude to take is that the regulators do not want you to have a license to engage in marijuana business activities, and they will do everything in their power to take it away.

industrial hemp CBD legal

As CBD and hemp continue to grow in popularity we are receiving an increasing number of calls and emails from companies that want to distribute hemp across the country. We have written about the legality of hemp and CBD under federal law:

This post focuses on another topic: state law on CBD and Industrial Hemp.

The 2014 Farm Bill grants states the authority to regulate Industrial Hemp, which contains less than .3%  THC on a dry weight basis, through an Agricultural Pilot Program. The Farm Bill also requires that Industrial Hemp is overseen by a state’s department of agriculture. The Farm Bill is light on additional details and states have taken different approaches to regulating Industrial Hemp and CBD derived from Industrial Hemp.

Colorado cemented its place in history as a cannabis pioneer by legalizing marijuana in 2012 along with Washington. Colorado’s hemp credentials are also solid as it has dedicated more acreage to the cultivation of hemp than any other state. Cultivators are permitted to sell hemp to the public. Colorado does not oversee the processing of hemp though which makes the extraction process largely unregulated.

Unlike Colorado, Oregon regulates both the production and processing of Industrial Hemp. Oregon’s Department of Agriculture (ODA) oversees the state’s industrial hemp program. “Growers” must register with the ODA in order to produce Industrial Hemp and “Handlers” must register to process Industrial Hemp. Oregon differs from Colorado in that it does not permit its Growers to sell Industrial Hemp directly to the public. Conversely, Handlers are permitted to sell Industrial Hemp to any person. Growers and Handlers may also sell their products to licensed recreational marijuana businesses giving them access the state’s recreational marijuana market. Growers and Handlers can apply to the Oregon Liquor Control Commission (OLCC) for an Industrial Hemp certificate to transfer hemp to recreational processors. OLCC retailers can then turn around and sell these hemp-based products to Oregon consumers.

Washington recently passed a law that sets up a similar structure. You can read about this law here, as we covered it a few months ago when it was still a proposed  bill. Washington’s licensed processors will soon be allowed to use additives derived from hemp-based products that were grown outside of its licensed marijuana system. These additives may come from Washington’s own Industrial Hemp program, which has been stalled for the last few years due to budget issues, or from Industrial Hemp sourced from other sources.

California has followed a similar path to Washington in that its hemp program has failed to launch in a meaningful way. Part of the hold up has been that California requires that Industrial Hemp only be grown by those on the list of approved hemp seed cultivars. That list includes only hemp seed cultivars certified on or before January 1, 2013. Industrial hemp may only be grown as a densely planted fiber or oilseed crop, or both, in minimum acreages. Growers of industrial hemp and seed breeders must register with the county agricultural commissioner and pay a registration and/or renewal fee. We wrote about proposed changes to California’s program here.

Michigan‘s office of Licensing and Regulatory Affairs (LARA) recently issued an Advisory Bulletin that only permits the sale of CBD in licensed medical marijuana dispensaries. The Bulletin first states that CBD cannot be found in portions of the cannabis plant that fall outside the state’s definition of “marihuana” (i.e., the mature stalks, seeds incapable of germination, fiber from stalks, oil or cake made from seeds or other derivatives of the mature stalks) other than in trace amounts. The Bulletin goes onto state that Michigan’s Industrial Hemp program does not authorize the “sale or transfer” of Industrial Hemp.

This is significant as it means that CBD derived from Industrial Hemp cannot be sold and that CBD derived from marijuana can only be sold in dispensaries. The Bulletin also seems to include Industrial Hemp from other states as it concludes with the following:

Any possession or transfer of industrial hemp – or any product claimed to be “hemp”-related – must be done in compliance with Michigan’s Industrial Hemp Research Act.

The bottom line in Michigan is that to sell CBD in that state, whether from marijuana or hemp, you need to go through a dispensary.

Also keep in mind that some states do not regulate Industrial Hemp at all. This should not be interpreted to mean that they will turn a blind eye to hemp products distributed within their borders. Other states, regulate CBD specifically, which can be found in Industrial Hemp, and those states limit the use of CBD to patients who have received an authorization from a physician for its medical use.

If you want to distribute Industrial Hemp across the country it is not as simple as making sure that you have a licensed cultivator. Sure, you need to know the laws of the state in which you are sourcing hemp, but that’s not enough. You need to also consider the legal landscape of the places you intend to ship and sell Industrial Hemp products.

washington cannabis license

As of April 1, 2018, Washington marijuana processors are required to hold a special endorsement from the Washington State Department of Agriculture (WSDA) to make marijuana-infused edibles (MIEs). This requirement follows from the WSDA’s appointment to share regulatory authority over MIEs with the Washington State Liquor and Cannabis Board (LCB). The WSDA’s Food Safety Program regulates, inspects and provides technical assistance to food processors generally, regarding product safety issues. Now, the WSDA will conduct similar activities with MIE processors including carrying out enforcement and recalls when necessary.

The endorsement costs $895 initially and $895 for each annual renewal. Applications must be submitted to the Washington State Department of Revenue Business Licensing Service website. Technically, processors are required to hold the endorsements as of April 1, but WSDA is providing a 30-day grace period. Therefore, the clock is ticking on any processors who have not yet acquired this mandatory endorsement.

Note that the endorsement is only available to businesses that already hold a processor license. The LCB is not currently accepting applications for new processor licenses. To add an MIE endorsement, a business or individual must currently have a processor license and only produce MIE products at a single facility. A business or individual cannot add MIE products under a Food Processor license, process MIE products at a facility that processes non-marijuana food products, or process non-marijuana food products at a facility that produces MIE products.

Prior to April 1, the WSDA had contracted with the LCB to inspect the facilities of processors making MIEs, so in some ways, not much is changing. Other than the new $895 fee, processors shouldn’t feel the impact of this regulatory change immediately. The LCB will maintain authority over marijuana activities such as processor license requirements, packaging, and labeling. Processors that are currently in compliance with food-related regulations for MIEs will not need to re-submit food safety information (e.g., floor plan, sanitation procedures) when applying for the MIE endorsement. If there are no changes to ownership, location, or products, WSDA will not require an inspection. Processors that have not produced MIEs before will have to submit additional information to WSDA and LCB. In 2015, the WSDA provided an outline of the basic requirements for processing MIEs and that document is available here.

Looking forward, processors can expect to deal with the WSDA more frequently. The WSDA now has authority to undertake enforcement action and implement recalls. On March 19, the WSDA issued a letter to stakeholders, stating that processors “may experience more frequent inspections, as well as more outreach efforts and industry engagement.” WSDA intends to inspect MIE-producing facilities within 12 months of the endorsement and may collect additional information during those inspections. Processors who make ownership, location, or product changes must submit materials to both WSDA and LCB.

If you hold a processor license that currently produces MIEs, you need to apply for this special endorsement this month to continue operating. This firm is very familiar with licensing procedures and can assist your business throughout the process of applying for this new endorsement. Feel free to contact us with any questions and stay tuned for additional updates.

marijuana washington employment
Washington’s new employment legislation hopes to close the pay gap.

More and more states are recognizing there is a pay gap between the genders. Washington is the latest state to address the gap through legislation. The near-final law, HB 1506, is commonly referred to as the Equal Pay Act. It is currently awaiting the Governor’s signature, which we can expect any day now.

Equal pay laws are complicated and understanding your obligation as an employer is critical to avoiding hefty civil penalties and  liability. Washington’s Equal Pay Act specifically notes the difficulties women can face in obtaining equal pay and moving up in companies. The Washington law attempts to address these issues by prohibiting employers from discriminating against similarly situated employees based on gender.

So what constitutes discrimination in this context? Discrimination occurs when an employer pays similarly situated employees different wages because of the employee’s gender, or when the employer fails to promote or advance an employee because of their gender. Employees are “similarly employed” if the performance of their job requires similar skills, efforts, responsibility, and if the jobs are performed under similar working conditions. Job title alone is not determinative.

Employers can pay similarly situated employees different if: 1) the difference is based on a bona-fide job factor that is consistent with business necessity; 2) is not based on a gender based differential, and 3) accounts for the difference. Bona-fide factors include: education, training, or experience; a seniority system; a merit system; a system that measures earning by quantity or quality of production; or a bona-fide regional difference in compensation levels. Employers bear the burden to prove there was a bona-fide factor for the difference in pay, which means that businesses had better get it right. Note that employers may use the same bona fide factors in determining whether to promote or advance employees.

Cannabis companies are not sheltered from the new law. Although cannabis companies boast a higher percentage of female founders and executives than other industries, women still face unique challenges in the industry. Studies suggest that while women have success starting cannabis businesses, they do not retain that success. As the cannabis industry has grown, female ownership and executive percentages has also dropped. Finally, as individual companies grow, they tend to adopt more traditional business structures that results in a high percentage of males in senior roles.

Every Washington cannabis company should have a plan in place to ensure its business practices meet the requirements of the new Equal Pay Act. A good place to start is to have an expert audit your payment practices and assist in drafting a policy identifying the factors that are considered in setting wages and offering promotions. Cannabis companies in other states should also follow suit: Equal pay promotes employee retention, creates positive brand capital, and–most importantly of all–it’s the right thing to do.