Draft Recommendations Could Wipe Out Many WA Medical Cannabis Businesses, Hike Costs for Others

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Most existing medical marijuana operations in Washington could go out of business if the state adopts draft recommendations released this week, while others would have to shell out hundreds of thousands of dollars in additional expenses to continue operating.

The draft regulatory recommendations, issued by a work group Monday afternoon, seek to fold Washington’s medical marijuana industry into its recreational program. Under the proposal, MMJ businesses would have to obtain licenses, pay taxes and meet a host of requirements covering everything from safety to packaging and labeling. (You can read the draft in its entirety here.)

Here are some ways in which the draft recommendations could affect a variety of businesses, from dispensaries and grow operations to testing labs and consultants:

Dispensaries: Existing dispensaries would essentially have to become adult-use retails stores, meaning they would also be subject to location restrictions and overall caps on the number of shops in the state and individual cities. These restrictions and caps – coupled with the high costs of meeting the new regulations – would likely force many dispensaries to close. In Seattle, for instance, just 21 retail shops will be allowed under the recreational rules, but there are an estimated 200 dispensaries.

Medical marijuana businesses also would have to be at least 1,000 feet from schools, playgrounds, recreational centers, child care facilities, public parks, public transit centers, public libraries or “any game arcade where admission is not restricted to persons age 21 or older.” Many existing dispensaries (which operate in an unregulated environment) would have to move, which is costly and eats up resources. And finding compliant space could be a huge issue.

“If these recommendations are adopted, medical marijuana providers will have to comply with the 1,000 foot rule, under which space is extremely limited in densely populated urban areas like Seattle,” said Hilary Bricken, an attorney with Canna Law Group. She added that, under the proposed recommendations,”there’s a good chance that medical marijuana dispensaries won’t exist” by 2015.

Additionally, restructuring to meet the requirements and applying for the license would become the top focus of marijuana providers, distracting them from other vital parts of running their business. Taxes would inflate prices and eat into profits as well.

However, current dispensary owners that successfully make the transition will be able to tap a huge new market (an estimated 300,000 consumers spending $500 million in the first year of the program, and $1 billion or more down the road). They’ll also benefit from operating under tight restrictions and regulations, which could shield them from federal interference.

Some could also still carve out a niche by keeping the focus on medical, as the draft recommendations would allow retail stores to get an “endorsement” to accept patients registered with the state’s medical marijuana program. These patients wouldn’t have to pay retail sales taxes on their marijuana purchases, which would give stores focused on MMJ a price advantage.

Grow operations: In the current unregulated market, most marijuana producers either grow at home individually or operate under the collective garden model. But both home grows and collective gardens would be eliminated under the draft recommendations. Those growing now would have to meet the new processor requirements, find a suitable location (which could be tricky due to zoning issues, like the ones in Seattle) and secure a license.

Shawn DeNae of the Washington BUD Company, which grows cannabis and supplies dispensaries under the collective gardening model, said the transition will likely cost her more than half a million dollars.

“Getting a license is one thing – finding a spot that qualifies under the 1,000-foot-rule will be hard enough – but then once the license is issued there’s also the possibility that the local zoning or planning commission will have a problem with your business being in the community,” DeNae said. “You’ll have to devote a lot of money and time to this, and there’s still the possibility it will get hung up” by red tape.

Still, as is the case for dispensaries, the rules could help minimize the possibility of federal prosecution and introduce long-term stability.

Infused products manufacturers: Companies that make edibles and related products will have to be extremely careful with packaging, as medical marijuana products would be “prohibited from being labeled in a manner that mimics candy, soda or other treats attractive to children.”

Hydroponics shops: Those that focus on the home-grow market would take a hit, but there would be increased opportunities for businesses that sell equipment and products for larger cultivation operations.

Testing companies: Most of the medical marijuana currently sold in Washington has not been tested for potency and safety, as it’s currently not a requirement. The proposed recommendations would require all cannabis businesses to perform such testing, representing a boon for companies that provide these services.

Packaging/labeling firms: Medical marijuana products would need to have labels displaying levels of THC and cannabinoids – creating new opportunities for packaging and labeling firms.

Real estate professionals/landlords: The location restrictions will create a huge scramble in some cities to find suitable space. Real estate agents that specialize in this area will be in high demand, while landlords with properties in compliant locations will have some significant pricing power.

Lawyers/consultants: Navigating the new rules and regulations will be challenging, and many current MMJ business owners will likely enlist the help of attorneys as well as consultants with experience in other regulated markets such as Arizona, Colorado and some of the newer cannabis states.

The Washington State Liquor Control Board will now solicit public feedback, amend the proposals and then issue its final recommendations to the state by Jan. 1.