Cannabis Business Blog

Hundreds of companies in Washington, Oregon, California and Canada are attracting billions in investments from just about every class of investor.

But the realities of investing in cannabis are far different from those in any other industry. You’ll need to be fingerprinted, undergo a background check, surrender your banking records and be ready to deal with state and federal laws that often seem in open conflict.

Any business can find itself in a cash crunch when big expenses or payroll disbursements come due. When you form an entity to do business in cannabis, how do you finance a big expense that needs to be made right now?

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On May 16, 2017, Washington Governor Jay Inslee signed GOP-sponsored Senate Bill 5131 to allow Washington State to be the first state in the nation to create a program to certify cannabis products as organic. The new law creates a voluntary program for the certification and regulation of organic cannabis products (both recreational and medicinal) to be administered by the Washington State Department of Agriculture (WSDA). The WSDA is now working on creating the rules for the new program and has stated that it will likely take several months to as long as a year before the rules are complete and certifications are handed out.

In a long-awaited decision released this morning, the United States Drug Enforcement Administration announced that it has denied two petitions to reschedule marijuana under the Controlled Substances Act (the “CSA”). The DEA concluded that marijuana should remain a Schedule I controlled substance because it does not meet the criteria for currently accepted medical use in treatment in the United States; there is a lack of accepted safety for use of marijuana under medical supervision and it has a high potential for abuse.  The DEA’s decision relies on a scientific and medical evaluation and scheduling recommendation from the United States Department of Health and Human Services (“HHS”), based on studies conducted by the United States Food and Drug Administration and National Institute on Drug Abuse (“NIDA”).

Ada Danelo is a Summer Associate at GSB's Seattle office. 

The University of Washington School of Law’s Cannabis Law and Policy Project hosted its first annual conference on Washington state marijuana policy on June 14, 2016.

Rick Garza, Director of the Washington State Liquor and Cannabis Board (LCB), and Seattle City Attorney Pete Holmes kicked off the Conference by discussing the following current policies and industry trends:

• • Use of pesticides on cannabis products. Garza described the regulatory issues that the LCB faces, and noted that one of the LCB’s new challenges is to ensure that cannabis products are safe and properly tested for pesticides. To address this, the LCB plans to work with the EPA and the Department of Agriculture.

• • Increasing market limits. By the LCB’s estimate, the market is sufficiently served by the 48 cannabis stores currently in Seattle, but Garza noted that the LCB plans to increase the market ban if they see demand. Holmes, on the other hand, commented that of the 48 stores allocated, only 31 are open, and that “we need substantially more,” adding that legal delivery services may be another way to meet that demand. The City Attorney also wants to ensure that applicants who are “sitting on” a license either use or lose it, which Holmes wants to work with the LCB to enforce.

• • Increase in tourism benefits hospitality and tourism industry. Holmes noted the significant increase in tourism to Seattle since legalization and how much it benefits hotels, restaurants, and the tourism industry generally. According to the City Attorney, the increase in tourism has created a need for marijuana lounges, since state law prohibits public consumption of cannabis.

The afternoon sessions featured cannabis producers, processors and retailers explaining the intricacies of their compliance with both state and federal law. Ian Eisenberg, owner of Uncle Ike’s Pot Shop, made a pitch for legalization, which he and the other retailers on the panel agreed limits underage access to cannabis – since legal stores turn away customers under 21.

Attorneys from various law firms also spoke about issues ranging from pesticide regulation and tax compliance to diversity in the marijuana industry. Andy Aley, Owner at GSB and Co-Chair of its Cannabis Industry Group, discussed the impediments to sales and marketing for marijuana producers and processors, noting that “it takes about six weeks to get a bud tender to even sample product,” and that “we need smart policy changes that allow the industry to mature and become more akin to the craft beer industry.”

With reports of significant non-approved pesticide use by some in the industry, the LCB has increased its focus upon pesticides.

In addition to emergency regulations addressing product recalls and pesticide action levels, the LCB (via the Washington State Department of Agriculture) recently amended the list of approved pesticides.  Specifically, the WSDA added 29 pesticides to the list of allowable products and removed 27 products.

Bottom line:  Make sure that your house is in order.  Confirm that your current stock of pesticides only includes those on the WSDA’s approved list.  Note that you may “use up” any existing inventory of the 27 pesticides removed from the list, but cannot purchase additional amounts of these products.  Also, we are seeing increasing volumes of pesticide-related disputes and lawsuits, and will address how to best protect your business from pesticide litigation in a future post.

Looking for a location for a licensed marijuana premises? Changes to the buffer zone requirements may be headed to your fair city.

Previously, the Washington State Liquor and Cannabis Board (“LCB”) would not issue a license for any premises within one thousand (1,000) feet of various sensitive uses, namely, elementary or secondary schools; playgrounds; recreational centers or facilities; child care centers; public parks; public transit centers; libraries; or game arcades admitting minors. RCW 69.50.331(8) (2013).

This requirement caused headaches for many applicants, as they scrambled to find compliant locations. This was particularly true for retailers in larger cities, where much of the prime real estate was near a public transit center, by a public park, or otherwise within the 1,000 foot buffer zone.