Those who receive notices still have options
By Sean Badgley
As of March 8, there were 1,136 applications for producer licenses still pending in Washington, out of 1,935 initial applications (meaning about 59% of the applications hadn’t been processed). Applications for processing licenses didn’t look much better, with about 49% of the applications pending.
Now, the Washington State Liquor and Cannabis Board is going to withdraw most or all applicants who are not licensed by May 31. In typical LCB fashion, there is little consistency to the plan, and much discretion from investigators. I personally know of one applicant who received a withdraw warning, then received an extension two days later. I know of another applicant who was told unequivocally by her investigator that there would be no extension.
So why is the LCB doing this?
In 2013, a strange sequence of events occurred in the run-up to the application window. Readers may recall scrambling to get ready for a spring application, only to be pushed back until July, and then again into October. The LCB finally opened a 30-day application window in November 2013.
The decision to limit the application time frame had one overarching and unintended consequence: the LCB ensured there were a finite number of applications, and thus unintentionally created a market for cannabis business license applications. Badly under-equipped both in manpower and understanding of the market, the LCB has been wading through applications for three years, slowly granting licenses.
Yet, the market turned out to be more vexing than the agency could have predicted. Had the application process been ongoing and open, such as the state business license application process, those who were ready could have sauntered through the process, while those who were not could have ultimately languished and had their applications denied or withdrawn. However, with a limited number of applicants and no new application process, the market was limited to those who were smart, ambitious or foolhardy enough to apply.
The price for applications grew steadily. Last year, those who wanted to sell their applications found individuals willing to pay five and six figures. Like most big ticket transactions, negotiations take time, slowing the licensing process to a crawl.
There was also a major learning curve. For those who wished to pursue the dream, they found willing investors who didn’t fully understand the laws, but were highly interested in the emerging market. Typically, having nothing more than an application and a state-registered LLC would not give somebody that much bargaining power. Thanks to the LCB, these individuals had far much more leverage than they otherwise might, because there were so few applications (thus even fewer opportunities to invest).
Conversely, many applicants were not sophisticated in the finer points of business, such as raising capital, cutting complex deals, and ensuring regulatory compliance (both from a cannabis and securities standpoint). This learning curve further slowed down the process. Now, three years on, the LCB has apparently decided its investigators have been buried in pending applications long enough.
In seeing this shift to clear the desks of the agency’s investigative wing, it brings up another relevant question: What rule allows the LCB to withdraw so many applicants?
The answer is that there is no written rule, but merely “administrative authority,” upon which state agencies rely to cover their tracks when they take action. Yet, there are vexing concerns.
Agencies are required to be consistent in enforcement of rules. However, investigators will continue to give breaks to certain applicants, while cracking down on others. This discrepancy in treatment will undoubtedly find a basis in some agency guideline known only internally to certain members of the LCB and not to the general public.
As an attorney, I question whether the withdrawal process passes legal muster, and as readers can tell, I have my doubts. As a cannabis supporter, there is a feeling somewhere between disappointment and disbelief that the agency will seek to prioritize a clean desk of an investigator over the will of the Washington voters.
Many of my legal peers are inclined to cut the agency some slack. An old colleague of mine used to say, “Never attribute to malice what can be explained by ignorance.” It’s a good rule to live by. Yet, when ignorance is every bit as damaging as malice, motivations matter less than harm done. Applicants who have received a 90-day notice should know that they do have options, and if investigators say otherwise, it might be time to reach out to a professional to ensure your application gets the consideration it deserves.
Sean Badgley is a Washington attorney who’s been working in the recreational cannabis industry for more than two years. He is the founder of C3 Law Group and can be reached at badgley@cannaconsultantslegal.com.