By David Kerr
Just as this nascent industry is getting off the ground (with something like 295 producer licenses issued to date and only 73 of 334 retail licenses awarded so far in Washington), the changes and reworking of the industry’s regulatory structure continues apace.
Proposed Rule Changes
The Washington State Liquor Control Board has proposed a fairly comprehensive revision to the approved rules. There are three sets of proposed rule changes that cover everything from updating some of the definitions, including defining “employees” and “paraphernalia,” establishing rules for processor to processor sale of “intermediate products”, increasing the plant canopy from 2 million to 8.5 million square feet, and addressing issues with extracts and edibles. This is by no means a complete summary of the proposed changes.
You really do need to read and become familiar with these proposed changes, because they touch on many aspects of this new industry. Every license holder (or pending license holder) will be impacted by these proposed rules changes.
These changes have been published on the Liquor Control Board website under Laws and Rules/Proposed Rule Changes. The board is seeking public comment by mail, email or fax by Dec. 3, 2014. There will be a public hearing at 10 a.m. Dec. 3 at the Liquor Control Board offices in Olympia.
Do take the time to comment on the proposed changes, and get others you know in the industry to comment as well. It can make a difference, since sometimes the Liquor Control Board is lucky to get one or two comments on a proposed rule change. Your comments and a few others to go along with it could really impact the rule-making process.
The 2015 Legislative Session
The next legislative session in 2015 is almost certain to bring significant changes to the I-502 landscape. There are a number of elements in the original initiative that have been difficult to implement and have made it unnecessarily difficult for I-502 businesses. Some of the provisions of the original initiative were put in there to help ensure passage and to demonstrate that the new marijuana market was going to be tightly regulated. The 1,000-foot rule is a good example and there are some facilities included in that list that make sense (schools might be an example) and others that do not (for instance, is having a producer/processor within 1,000 feet of a transit center really a risk?). Requiring that transportation be done by an employee as opposed to a trained and qualified third party also doesn’t seem to make sense.
If the legislature can set up a mechanism for tax sharing between the state and local authorities, it might go a long way to eliminating the persistent local moratorium problem that plagues this industry.
That said … don’t assume that the changes that may occur in the next legislative session will be favorable to the industry or your business. Changes will now be easier to enact, since it will no longer require a super-majority to enact changes to the initiative. A simple majority will do it, and not every legislator is favorable to the industry.
Your task for the next legislative session is to stay aware of and on top of the various bills that are introduced and make their way through the legislative process. If that is not your interest or style, find an active organization that will be engaged in the legislative process. Having an active and organized industry voice that engages in the legislative process is going to be extremely important in the next legislative session.
Adding Financiers or Changing Your Operations
The Liquor Control Board has helpfully published several forms that will make it easier for license holders who need to make necessary changes to grow and expand their business and operations.
– Financiers: If you need or want to add a financier to I-502 your business, the new application for adding a financier form has made some changes that should help. The most significant change is that the new financier (and spouse, if applicable) only has to have resided in Washington State for three months prior to the time you submit the application to add them. That means, if a potential financier just moved here a few months ago, they can now loan or give you money for your I-502 business, as long as they have been a resident for at least three months prior to the application to add them as a financier. Of course, they can’t have a percentage interest or part ownership in the business and the criminal and financial background check is required, but your pool of potential financiers, now and in the future, just got much bigger.
– Operating plan changes: This new form can be used to request physical alterations to the licensed facility or change the operating plan to add an extraction operation and/or the production of edibles that weren’t part of the original operating plan you submitted during the initial investigation process. Of course you will need to describe the change in detail, and if it requires a physical change to the licensed premises, then a new floor plan has to be submitted for approval.
It should be noted that you cannot use this new form to request a change to your license tier by increasing your plant canopy above the limit set for your current tier.
Everyone anticipated the need to be able to make changes to submitted operating plans and the need for I-502 businesses to be able to fund the growth and expansion of the business. Indeed, Washington Administrative Code 314-55-120 anticipated this, but now we have the forms and a mechanism to do it.
Attorney David Kerr serves business clients throughout the state, including an emphasis on the emerging legal, regulatory and compliance issues facing new cannabis businesses.