Week in Review: Turbulence in Washington State’s MMJ Industry Unfortunate, But Inevitable

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By Chris Walsh

Washington’s medical marijuana industry could be put on life support soon, but a sliver of hope for its future emerged this week.

On Monday, a lawmaker introduced legislation that would keep medical marijuana separate from the state’s recreational cannabis program, setting up a system to license and regulate MMJ businesses. The measure would ensure that existing dispensaries and cultivation operations have a future in the state’s new cannabis market.

That wouldn’t necessarily be the case under a plan put forth by the Washington State Liquor Control Board, which has recommended lumping everything under the adult-use umbrella and requiring all businesses to go through the same licensing process and adhere to the same rules.

Due to caps on the number of licenses awarded under the recreational program, many existing dispensaries would be forced to close, particularly in Seattle. And all collective gardens would have to pack it in.

The fact that Washington is even grappling with this issue can be traced to the fact that the state never set up regulations and rules covering the medical marijuana industry. Dispensaries and collective grows are illegal, but local and state officials have allowed them to exist anyway in an unregulated market.

, Week in Review: Turbulence in Washington State’s MMJ Industry Unfortunate, But InevitableWashington did try to enact regulations in 2011. But the governor vetoed key portions of the proposal after receiving warnings from the feds that state employees could be prosecuted, leading to the chaotic situation that exists today.

While it’s unfortunate that the Liquor Control Board and other agencies want to wipe out the existing medical marijuana industry, it shouldn’t exactly come as a surprise. In fact, you could say that an upheaval of the current situation is inevitable.

We have seen this type of turmoil time and time again in markets that have failed to regulate the industry (see: California, Michigan and Montana). Just this week, for instance, medical marijuana professionals and advocates in San Jose, California, began lobbying for regulations in a bid to stave off an attempt to shut down most of the city’s 80 dispensaries. The root of that problem lies in the fact that neither California nor San Jose regulate the industry.

In Oregon, dispensaries exist in a climate similar to the one in Washington, and they are now experiencing turbulence as well. The state passed a law last year to regulate the industry, requiring owners to obtain licenses and meet a host of new requirements.

Some – or perhaps many – dispensaries in Oregon won’t be able to meet the criteria to gain a license and will therefore have to close. Those that do win permits will have to shell out tens of thousands of dollars in application and licensing fees, security equipment and other upgrades to comply with the law.

Businesses in states with heavy regulations don’t experience as much volatility and fundamental change, nor do they take on as much risk.

Consider this: Colorado, which legalized recreational cannabis at the same time as Washington, has already launched retail marijuana sales. The rule-making process was relatively smooth, and there were no grand debates about eliminating medical marijuana businesses. In fact, existing medical marijuana players were given a leg up in the recreational market, as they are the only ones who can apply for MMJ business licenses until later this year.

The difference: Colorado has strict, clear rules on its medical marijuana industry. Washington does not.

To be clear, businesses should not be blamed for the fact that Washington hasn’t pushed through regulations. There are plenty of professional operations that follow (and have even set) best practices, and some serve as model businesses. If these dispensaries are punished unfairly because the state Legislature adopts the Liquor Control Board’s plan, that would be extremely unfortunate.

However, the situation underscores the massive risks of operating in an unregulated market. Businesses operating in other areas without oversight should take note, as this could serve as an omen for what’s ahead.

Chris Walsh is editor of Marijuana Business Daily