WA readies for bumpy ride as state’s medical, rec markets merge

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By Omar Sacirbey

Washington’s cannabis industry is bracing for a July 1 deadline when unlicensed dispensaries must close under a new law that rolls the state’s medical marijuana program into its recreational program.

Some industry officials warn the MMJ sector will be decimated. But most industry observers reckon the state will fix the kinks.  

And while they’re prepared for a bumpy transition after Friday’s deadline, industry and government officials predict the new system ultimately will meet the needs of recreational and medical customers.

For now, however, recreational cannabis business owners complain the new system imposes unnecessary paperwork and other costs on stores, and it fails to provide enough business licenses to go around. They also complain it forces medical cannabis patients to pay higher taxes that they don’t have to pay under the existing system.

Moreover, a last-minute glitch in the state’s authorization database – used to produce patient identification cards – has thrown a new obstacle into the works that could hamper MMJ patients’ ability to get medicine.

“I agree that it was a major problem that dispensaries were not licensed and regulated, and that they needed to be brought under control. But the way that they’re going about it in Washington isn’t to bring two systems together, it’s to get rid of one system,” James Lathrop, CEO of Cannabis City, a marijuana store in Seattle, said.

But he sees a longer term bright side, too.

“Many of us are not happy with the new system. But if we can lower some taxation and increase access and do a few things to make this workable, then that would be a good thing,” Lathrop said.

Unregulated to regulated

Before Washington legalized recreational marijuana in 2012, it had a long-established medical marijuana market that some say exceeded 1,000 stores. But that market was unregulated and dispensaries were unlicensed.

Lawmakers in the state capital Olympia were skeptical of MMJ, and thought that many people with medical marijuana recommendations didn’t genuinely need the medicine – a perception that industry officials dispute. So legislators opted to bring the MMJ landscape under control.

“There were some shenanigans and shady players,” Shawn DeNae Wagenseller, CEO of the Washington Bud Company, a Seattle cultivator, recalled. “But there was a large contingency of us who were trying to do it right.”

Rather than creating a regulatory system tailored for the medical market, legislators passed a bill earlier this year creating just one class of stores that serve recreational customers. A store also can serve medical cannabis patients by getting a “medical endorsement” from the state.

The legislature also capped the total number of licenses at 556. Through June 22, however, only 384 licenses had been granted, and it isn’t clear when – or if – all the licenses will be taken.  Of those 384 licensed stores, 332 received medical endorsements.

“It’s a controlled market. There are limited licenses. Those complaints, we hear them, but many dispensaries have come over,” Mikhail Carpenter, a spokesman for the Washington State Liquor and Cannabis Board, said. “People who didn’t get licenses say there aren’t enough, and people who did get licenses say there are too many.”

Shy Sadis owned several medical dispensaries in Seattle and the surrounding area, but made the jump to rec and owns three stores – the most stores an individual can own – under the new system. But he is also fighting a court battle trying to obtain a license for what he calls his flagship store, The Joint, which sits in Seattle’s popular University District.

He intends to keep the store open as long as the court battle continues, and predicts he’ll eventually prevail.

“I’ve got people knocking down my doors who want to give me half their license just because my location is the only one in the U District,” Sadis said. “So my store will be open in a matter of two to six months, it’s just a matter of whether I’m going to be a 100% owner or a 50-50 owner.”

State database glitches

The glitch in the state’s MMJ authorization database added yet another wildcard into the merger of the medical and recreational markets. Washington’s health department announced Tuesday the database was experiencing “software challenges” ahead of the July 1 start date for the new program.

The department warned the problem may cause delays in issuing the patient ID cards, and that patients may not be able to take full advantage of the state’s medical cannabis program. For example, patients must have a card to buy high-THC products.

The patient ID system itself, meanwhile, presents a host of challenges for retailers, Cannabis City’s Lathrop said.

The state will keep tabs on patients who must sign up for the registry that entitles them to receive the ID card. But store owners – not the state – must issue the cards to patients.

Retailers, as a result, must dedicate a portion of their store where they can take photos of patients and complete their paperwork. They must then send the photo to the cannabis board, which replies with an email containing a PDF of a patient’s card. The store must print out the card and laminate it at its own expense.

“We’re trying to be compliant and we’re trying to offer this service, but as a retailer there’s no apparent value. I’m not going to make money from this. In fact it’s going to cost me money,” Lathrop said. “If the state wants to have a medical registry, it should be the one printing up the cards.”

Retailers also bemoan the taxes patients will have to pay under the new system. Under the existing system, patients pay taxes at a dispensary’s discretion, because it’s unregulated.

Under the new system, patients must pay a 37% excise tax, which is sharply higher than before. The tax amounts to the same tax retail customers pay, 46.6%, minus a 9.6% sales tax. A patient card excuses a customer from having to pay the sales tax.

Got variety and expertise? 

Patient advocates worry that rec stores won’t have the same variety of products or knowledge as their medical predecessors.

But industry officials say that fear is unfounded, because many of the new rec store owners have come over from the medical side. The state also mandates that every store must have a certified patient advisor. To obtain certification, staffers must take a course that lasts about 20 hours and teaches students about the effects of medical cannabis on the body and how it can be used against various ailments.

“There will be a transition period as people figure out the new system; but products will be available,” Carpenter of the state liquor and cannabis board predicted.

Omar Sacirbey can be reached at omars@mjbizdaily.com