Foundry Law Group Blog

Relief In Sight: Liquor & Cannabis Board to Consider Rules Changes

I have been telling my cannabis industry clients and constituents for two years to be patient; the regulations which, to a great extent, have choked the development and growth of the legal cannabis industry in Washington, will loosen up eventually. Washington’s restrictive and conservative approach, which has purposefully stayed under the federal oversight scrutiny, appears to be relaxing in some rather substantial and positive ways if the proposed rule changes announced by the WA State Liquor and Cannabis Board on January 6, 2016 are adopted by the Board come February 24th.

To the credit of the WSLCB, they have heard and listened to the comments, constructive or otherwise and are prepared to loosen some of the constraints that have held the Washington market back artificially, as compared to the Colorado legal cannabis market or other less regulated early stage ripe growth markets. Certain other constraints imposed by the yet unresolved and very present Federal illegality resulting from cannabis being a Schedule 1 Controlled Substance will still exist, and while there is hope for some movement there (the DEA and FDA are currently huddling over and considering “data” of unknown origin or veracity to consider re-scheduling of the plant), that will be the topic of a future article.

Highlighting the proposed changes to the WSLCB regulations, which will have an immediate and potentially substantial effect on the existing legal cannabis businesses, are the removing of the six-month residency requirements for financiers (effectively opening the door for out of state financiers – something that has slowed the start and growth of the industry in Washington). In my view, this is HUGE. While the source of the funds will still be subject to scrutiny as to its origin (to assure the exclusion of organized crime, influence, and money laundering) as will the personal backgrounds of said financiers, this move alone will open up virtually unlimited additional sources of funding that are so badly needed in an our industry. Until now, the industry has been suffering the plight of severe under-capitalization on top of other regulations restricting the ability to take advantage of economies of scale enjoyed by other industries. Restrictions such as limits on canopy, limits on the number of licensed businesses with common ownership, limits on who may own businesses in terms of residency, and prohibition of full vertical integration have held the legal cannabis industry from achieving its fullest potential. On top of these overly burdensome regulations, the lack of access to institutional banking and financing in the form of mortgages for cannabis businesses (with limited exceptions with some creative structuring) or other normal business start up source of capital continue to stunt the industry’s growth in Washington. The cherry on top of this all, let’s not forget, is the onerous federal taxation codified at IRC Section 280E due to our state legally licensed businesses still being considered illegal by the Feds, disallowing most normal business deductions on federal tax returns.

The system overall is still far from perfect, but it is a step in the right direction. Kudos to the Washington State Liquor and Cannabis Board for listening and acting sensibly. Other changes being proposed at this time include removing language from the regulations which prohibit the use of terpenes and cannabinoids, removing language which prohibit the characterization of flavors for inhalants, removing the requirement of re-testing after 30 days, and several others. In a separate action, the Board also adopted emergency rules to expand the number of retail marijuana outlets to accommodate the forthcoming integration of the medical and recreational markets from 334 to a new cap of 556 . . . zoning and willing and available real estate permitting. For a full list and summary description of the proposed changes as well as the actual change in the language of the regulations go to the WSLCB website. If adopted, the new rules would be effective as of March 24, 2016.


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