LCB Announces New Policy: One Producer's License at 70%

The LCB announced today a major new “ Interim Policy.”  In an effort to manage the state-wide 2 million square foot plant canopy limitation, the LCB has decided to restrict each principal/entity to ONE producer’s license.

For those of you with more than one producer application, you will be given the option to withdraw (with refund) your other applications, or to put those applications on hold for a year (or until the LCB determines that more licenses are needed).
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 In addition to the limit on producer licenses, the allowable plant canopy per license is being reduced to 70% of the original tier allotments.  As a result, the new producer tiers would be as follows:

                Tier 1:    0 – 1,400   square feet
                Tier 2:    1,401 – 7,000 square feet
                Tier 3:    7,001 – 21,000 square feet

As this was explained to our office, this reduction in tiers would not affect those who requested square footage within the new limits.  In other words, an applicant who requested 4,000 square feet as a tier 2 would not see a reduction, but an applicant who requested 8,000 as a tier 2 would be reduced to 7,000.

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 In some respects, this announcement is not a complete shock, since we already knew the state-wide canopy size restriction was problematic.  With 2,858 producer license applications outstanding, the current demand for plant canopy far exceeded the 2 million limitation.  That said, few in the industry would have guessed that the LCB would limit applicants to one producer's license.

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 This development is not the end of the story.  Many expect the LCB to revisit the state-wide canopy size allotment in the coming year, especially in light of recent state bills which merge the medical marijuana market into I-502.  If this "merger" were to happen, many expect the LCB to increase the state-wide canopy limit in order to accommodate the existing medical market demand.  When and how this will occur is yet to be seen.

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Banking Memo Opens Door for Marijuana-related Businesses

Good news was announced by the Obama administration’s Financial Crimes Enforcement Network (FinCEN) this Friday.  The FinCEN published guidelines for banks providing financial services for marijuana-related businesses.  With this document, the Department of Justice further demonstrates that it does not intend to prosecute legal, licensed marijuana businesses – and provides a means for financial institutions to handle their accounts.   

The current Banking Security Act (BSA), requires financial institutions to file Suspicious Activity Reports (SARs) on businesses they know or suspect to be engaged in potentially illegal activity.  Under the new guidelines, SARs still must be filed for marijuana-related businesses, even in states where this activity is permitted by state laws regarding medical or recreational marijuana.  In addition, financial institutions are expected to also obtain a significant amount of information about business operations, including relevant licensing and registration, understanding the normal business activity, including the type of products and customers served, and performing ongoing monitoring of the business and related parties, with an eye to report any suspicious activity.

There will be three subtypes of SAR filings for use in regard to marijuana-related businesses: a “Marijuana Limited” SAR for businesses that appear to be operating legally, and not engaging in activities that will interest federal prosecutors (as detailed in the Cole Memo of August 29, 2013), a “Marijuana Priority” SAR for businesses that appear to be in violation of state law or interfering with federal enforcement priorities, and a “Marijuana Termination” SAR in cases where a financial relationship with a marijuana-related business is terminated due to suspected violations.

This is good news for marijuana businesses, and opens the door for banks to accept their accounts. Ethan Nadelmann of the Drug Policy Alliance observed: “It appears that the Obama Administration is trying to provide as much protection as possible for the marijuana industry, given the constraints of federal law.”  Proposed federal legislation providing further protection – for bank and client – has yet to gain traction. In his Hit & Run blog, Jacob Sullum observes: “without new federal legislation, banks accepting marijuana money will always be taking a legal risk.”

Washington State Attorney General Says Local Pot Bans Legal

A formal opinion, given by Attorney General Bob Ferguson’s office, has stated that local communities can continue to ban marijuana stores from opening in their jurisdiction. This could put licensed growers and retailers in a bit of a bind. After all, the State Liquor Control Board could issue a license to a marijuana business and then that business could be refused the local business licensing or other permits it would need to open.

Colorado is facing similar issues. In Colorado, local bans have left some communities with marijuana businesses and some without.

Yet those who are for the ban, such as Dan Roach, Council Chairman for Pierce County, are glad that their counties will be able to ban marijuana businesses and “not expend taxpayer dollars to defend it.”

State Representative Chris Hurst, however, has argued that the initiative pre-empts local action. He says that if the ruling holds it could potentially ruin the whole legalized marijuana experiment for the entire state of Washington.

Chris Hurst also says that I-502 will fail without pre-emption. According to Hurst, a major county cannot rely on criminal distribution of marijuana and then have licensed stores in the next county over.

Sharon Foster, Liquor Control Board Chairwoman, agrees because the local bans will in effect allow the current illicit markets to continue, while reducing the state's expectations for revenue that is to be generated from the newly legalized marijuana market.  

According to state law, cities and counties have the right to decide their own regulations unless forbidden by state law and I-502 did not address that issue.

There are two options looming to address this issue. Currently under consideration is a proposal to threaten reluctant cities and counties with loss of funding. The other option is to change the initiative; however, that requires two-thirds supermajorities in the Legislature this year.

For now, it seems that this issue will likely be settled in court. Until then, Washington counties like Pierce and Lakewood are happy with Ferguson's opinion.