Week in Review: LA Elevates Crackdown, WA Cities Tackle MMJ & a Case for Hawaii Dispensaries

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By Tony C. Dreibus and John Schroyer

Los Angeles files a lawsuit against an ancillary medical marijuana company, cities in Washington State seek to address the MMJ issue on their own, and a report in Hawaii could pave the way for dispensaries.

Here’s a closer look at several notable developments in the cannabis industry over the past week:

LA Lawsuit

In its ongoing battle against illegal medical marijuana businesses, the city of Los Angeles filed suit this week against a medical marijuana delivery app that officials contend violates an ordinance approved by voters last year.

It’s an interesting development on two main fronts:

  • The lawsuit targets an ancillary company – Nestdrop – that doesn’t handle marijuana. Nestdrop is an app that helps connect patients with dispensaries that actually provide delivery services themselves. The city’s complaint contends that Nestdrop is breaking the law just by “facilitating distribution,” even if it’s not employing actual deliverymen. But under this definition, lots of other businesses could theoretically be seen as facilitating distribution.
  • The move shows how serious Los Angeles is getting about enforcing Proposition D, which greatly restricts the city’s MMJ industry. Instead of just targeting the hundreds of storefronts that are now illegal under Prop D, the city also is taking aim at other types of companies and delivery services.

The big question now: If the lawsuit is successful, what will it mean for other medical marijuana businesses in Los Angeles and elsewhere in the state – as well as for California’s booming MMJ delivery industry?

California lawyer Aaron Lachant said it’s unlikely that the Nestdrop case could serve as a legal precedent for shutting down similar companies or apps in other geographic areas, given that the suit is based on a city ordinance.

“That being said, a ruling in favor of the city of Los Angeles may embolden other cities to ban marijuana delivery services and apps,” Lachant warned.

WA Cities Wrestling With MMJ

Without state guidance telling them how to regulate medical marijuana dispensaries, Washington cities are taking matters into their own hands.

Tacoma officials said this week they will send warning letters early next year to dispensaries and other medical cannabis businesses they deem to be operating illegally, telling them to cease operations by summer.

And in Seattle, Mayor Ed Murray is trying to find a more business-friendly solution. Murray is spearheading an effort to develop regulations that would allow dispensaries and other MMJ businesses to continue to exist – provided they meet certain requirements tied to everything from packaging to advertising.

The mayor initially planned to finalize proposed regulations this month but said recently he would wait until January to be sure MMJ businesses “feel like they’re able to meaningfully contribute” to the proposal.

Washington State never crafted rules on the medical marijuan industry, so there’s no regulatory structure or oversight on MMJ businesses. Surprisingly, the state hasn’t addressed the situation despite putting a strict regulatory framework in place for recreational cannabis.

Given this lack of direction at the state level, other cities could take cues from Tacoma and Seattle and try to come up with their own MMJ policies. If Washington officials don’t get their act together soon, the state could become a patchwork of differing laws that vary by city as local officials try to come up with their own solutions.

Meanwhile, MMJ businesses continue to operate in an uncertain, unstable climate.

“It’s difficult to live that life,” said Jon Hofer, founder of RMMC Consulting, which advises dispensaries on marketing and development. Dispensary owners “don’t know what’s going to happen one day to the next. It’s really rough.”

Aloha, Dispensaries

There could be a new medical marijuana market in the middle of the Pacific Ocean in the near future.

In Hawaii, registered MMJ patients are allowed to grow their own cannabis at home, but dispensaries are still against the law. That may very well change in 2015 if state lawmakers decide to heed a recent report from the state auditor’s office.

The report, which stems from a failed bill earlier this year to allow MMJ dispensaries, makes a thorough argument in favor of setting up a carefully regulated system for dispensaries across Hawaii’s main islands.

The state auditor’s office recommends at least one dispensary per county. That effectively translates to at least one dispensary per island, in order to protect patients from breaking federal law by transporting MMJ between any of Hawaii’s five primary islands.

“The (Department of Health) agreed that 20 dispensaries statewide would be a reasonable number,” the report suggests.

The report proposes a graduated fee structure for MMJ businesses ranging from $10,000 to $50,000, depending on the number of patients a given dispensary serves.

“At an average of over $30,000 per dispensary, this would amount to more than $600,000 in revenue and fully cover (the health department’s) estimated program costs,” the report reads.

Still, the state auditor’s report is just that – a report. It recommends that a lot of decisions be left up to the health department, including the number of dispensaries allowed.

The report also contends that the failed attempt from this year was quite flawed in several ways, and needs to be amended before being re-introduced at the state Legislature.

If nothing else, though, it revives hope that Hawaii will finally allow dispensaries to open in the near future.