Week in Review: Bill Spells Doom for Many WA Dispensaries & MMJ Grows, Boom for Rec Shops

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By Tony C. Dreibus

Big changes are likely in store for one of the nation’s largest medical marijuana markets, and there could be hundreds of MMJ business casualties – but new opportunities for fledgling recreational stores – as a result.

Earlier this week, Washington State lawmakers passed a sweeping bill that essentially seeks to eliminate the state’s thriving unregulated medical cannabis industry, meaning many of the 475-plus dispensaries and scores of collective gardens could be wiped out.

The measure will become law with the stroke of Gov. Jay Inslee’s pen, which is expected any day now.

If that happens, the state will significantly alter a medical marijuana market that hauled in $80 million to $100 million in sales last year, according to Marijuana Business Daily estimates.

Under the bill, dispensaries and collective gardens would basically have to get licenses from the state – and meet a host of regulations – by July 1, 2016, or close up shop.

Many of the details still need to be worked out, such as how the state will respond to those that don’t comply, how many licenses will be available to these businesses and when the permitting process would begin.

But many existing dispensaries and MMJ grows that have been operating for years likely won’t be able to make the transition to a licensed landscape, as they don’t have the capital or resources to meet regulatory and compliance requirements. There also might simply not be enough licenses to go around.

“The deal is that … collective gardens and all MMJ dispensaries as we now know them will be shutdown by summer 2016, no questions asked,” said Hilary Bricken, a lawyer with Canna Law Group in Seattle.

While the state and individual cities have done little to crack down on medical marijuana businesses yet – they have operated in a gray legal area for years – that would likely change if the governor signs the new bill.

Seattle City Attorney Pete Holmes told the Seattle Times the law gives his office the clarity it needs to “usher the 103 or so dispensaries we know of into legitimacy or into a new line of work.”

The measure (Senate Bill 5052) aims to create a more stable environment for the state’s cannabis industry by bringing both the rec and medical markets under one umbrella.

Recreational businesses stand to benefit from the new law, as they wouldn’t have to compete against a proliferation of dispensaries that can sell cannabis at much lower prices because they don’t face the same regulatory and tax burdens. Just as importantly, recreational stores would have increased access to the tens of thousands of MMJ patients that currently purchase cannabis at dispensaries.

A medical marijuana market would still exist, just in a different form than now.

Under the law, stores with a rec license could apply for a medical marijuana endorsement that would allow them to target registered MMJ patients, who would be exempt from paying taxes and could purchase three times as much cannabis as rec users. The stores would also be allowed to legally sell medical cannabis to patients as young as 18 (buyers must currently be over the age of 21 to even enter a rec shop).

Some dispensaries currently operating would likely vie for a rec license with an MMJ endorsement, though some would just attempt to obtain a general retail license so that they could continue operating. Regardless, it’s doubtful the state will award enough new licenses for every existing dispensary, meaning many – even the more reputable players – could be shut out.

The upshot is that some dispensaries that applied for – but did not win – rec licenses previously could get another shot to enter the regulated market.

The law also would force collective gardens to obtain licenses and meet regulations that would impose strict plant limits (60) and follow other rules.

Some other details:

  • A new Liquor and Cannabis Board would replace the Liquor Control Board that currently oversees the state’s recreational program.
  • The state is expected to begin accepting applications for additional licenses once the bill is signed, but when and how many is undetermined.
  • The bill calls for the use of a merit-based system to award licenses, giving first preference to those who applied for a marijuana retailer license prior to July 1, 2014, operated or were employed by a collective garden or dispensary before Jan. 1, 2013, maintained state and municipal business licenses and paid all applicable state taxes and fees. Second preference would be given to applicants who hadn’t applied for a retailer license, but met the other criteria.
  • To determine how many licenses will be issued, the state will need to consider limits on how much marijuana is allowed to be grown. If increased production is warranted, the board will then decide whether or not to open a licensing period for applicants, but only to cultivators “who agree to grow plants for marijuana retailers holding medical marijuana endorsements,” Bricken said.

The bill is quite controversial in the existing medical marijuana industry, as one would expect. Many patients will be unwilling to register for a medical card, and therefore they would tap the black market.

Some see this as a way for the government to “hold patients hostage,” said Karl Keich, the owner of collective Seattle Medical Marijuana Association.

“For my patients who are on a fixed income, the cost is going to go up at least 30%,” he said. “That’s something I’m concerned about as a business owner and humanitarian. Plus, we give away a lot of medicine, and we wont’ be able to do that, so that’s concerning.”

Keich said he’s one of those who meets the initial criteria to give him a leg-up in the next round of licensing. Yet there’s no guarantee he’ll win a permit.

“It’s nerve-wracking,” he said. “We’re hoping there’s no disconnect in Olympia and they issue the right amount of licenses. Hopefully these changes are going to right the system. If (other states) want a great example of what not to do, look at how Washington state has started.”

Ian Eisenberg, the owner of Uncle Ike’s, a recreational retailer in Seattle, said he thinks only a “small percentage” of collective garden owners will convert to the new system.

“Some aren’t good at living under a regulated system,” he said. “A lot of people don’t want government regulations or to pay taxes at all, and that’s a disservice to patients.”

The governor has five business days from receiving the bill to either sign it or reject it. A spokesman wouldn’t say Inslee would definitely pass the bill, but said the governor has wanted a resolution to troubles surrounding the MMJ program for some time.

“He’s been pushing for something like this for two years,” Inslee spokesman David Postman said.

Tony C. Dreibus can be reached at tonyd@mjbizmedia.com