September 4, 2013

WA Significantly Revises Proposed Rules for Recreational Cannabis Businesses

Image for Initiative 502
By Anne Holland

Today the Washington State Liquor Control Board (LCB) announced key changes to its proposed rules for recreational cannabis businesses under the state’s Initiative 502. Key changes are designed to open up more potential locations for retail in built-up areas such as Seattle, and to stop large corporations or monopolies from dominating production, processing or retail.

Cannabis entrepreneurs have been very concerned about I-502’s 1,000 foot rule which prohibited retail locations from opening within 1,000 feet of buildings and parks frequented by children, such as schools, day care centers, game arcades and public parks, because very few qualifying retail locations exist in urban areas. Although the board could not change the 1,000 foot distance, they propose to modify how the distance is measured. Instead of being measured as the bird flies, the proposed measurement would be “along the most direct route over or across establish public walks, streets, or other public passageway.” Public parks have also been redefined to focus on parks owned or managed by a metropolitan park district, as opposed to just a publicly-used trail.

Another significant proposed change is restrictions aimed at supporting small cannabusinesses versus chains. Each entity and its principals would only be allowed up to three producer or processor licenses in the state. Although the rules as they stand now would allow for 334 retail storefronts across WA state (with 21 in Seattle), each retailer would only be allowed a total of three locations, with none allowed more than 33% of total licenses per county or city.

Unfortunately for the CBD industry, the proposal also requires that advertising may not represent that the use of marjiuana has curative or theraputic effects.

The LCB’s I-502 website has been updated with factsheet on the changes to proposed rules. A further set of public hearings to discuss the proposals is set for Oct. 9th. The LCB also encourages interested parties to email questions and concerns to [email protected].

The final rules are expected to be announced Oct. 16th and become effective on Nov. 16th. Then, starting Nov. 18th, entrepreneurs will have 30 days to apply for licenses. However, given the extent of the proposed changes and the continued avalanche of public feedback to be managed, the LCB does not expect any retail locations to open until May or June 2014.

As LCB spokesperson Brian Smith notes, no rules are ever completely final. “We’ve been tweaking liquor rules for the past 80 years. There will be changes over time, but you’ve got to start somewhere.”

This doesn’t mean the rules will be changed to circumvent state laws. According to Smith, many of the questions the LCB receives from would-be cannabusiness license applicants are about things that are codified in the law which are not subject to LCB change – such as criminal records and residency requirements. “If you’re planning to apply for a license on November 18th, you should have moved to WA already.”

In related news, Smith confirmed reports that BOTEC Analysis Corp is no longer producing research on a consulting basis for the LCB as the state has received all the research information it needs (and can afford) at this time. This March, the firm beat out a field of nearly 100 applicants for a six-figure consulting contract with the LCB to help research I-502 implementation. Although the state initially budgeted $100,000 for this consulting, the final figure spent reportedly came in at more than $800,000.

BOTEC’s research white papers are posted online. Key business findings include the fact that only perhaps 50% of the businesses granted licenses under I-502 will ultimately be able to stay in business (this is actually a fairly high success rate compared to most small business sectors) and that state-legal businesses can only expect to win a 15-25% market share from illegal producers and distributors anytime soon.

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