Stuff Just Doesn’t Happen On It’s Own

Last week when the Liquor Control Board, (LCB), went “small ball”, or “ma and pa” (to use the Seattle PI description) on recreational cannabis production limits, it was not the outcome of a couple of days of consideration of all the variables. We have picked up comments that Federal Officials were still whispering in their ears about the Department of Justice (DOJ) August memo explaining and demanding that Washington (and Colorado) better not have excess product leaking across state boundaries and better know from where and to whom the product is delivered. Also mixed in these comments were tales of Medical Marijuana (MMJ) advocates demanding smaller grow operations for reasons including; supporting small business, respecting existing MMJ grower’s co-ops, diversity and purity of strains.

On closer examination and followup it appears that the impetus for the reduction in size and number of production operations actually came from good old fashion lobbying. Yes, actual contact with LCB members to discuss concerns and sell the point. Washington is Washington and the same pioneer spirit and local involvement-culture that brought us a “yes” vote on I-502, the state’s recreational use law ballot measure, seems to have brought us a regulatory culture of “ma and pa” recreational cannabis production. Do not underestimate the impact of our state’s existing co-op type MMJ grow operations on the LCB’s small ball ruling.

The Practical Impact

One of the issues the LCB has been struggling with is the gamers. All along there has been testimony at hearings and backroom chit chat about the gamers, or the folks who make production license applications with no ability to produce. These folks may have no capital, no location, and use profits from one license to launch the other two (originally three were going to be allowed). The other issue the LCB may have to deal with is what does the board do with requests for production or even retail application in areas where local governments have prohibited, or will prohibit any cannabis enterprise? Unwittingly or intentionally most of the prohibition resolutions drafted and adopted by local government are general cannabis in nature and include MMJ. The logical options are to sort it out and try to hit a moving patchwork quilt of allowable areas, or issue blindly and ignore the prohibition areas. Let local government trump the state action.

BTW, these prohibition areas may be reduced as bills moving through the legislature set up a system of tax sharing only with local governments that allow cannabis enterprises. You know, the carrot. Or as one lobbyist called it, bribery. Ouch, but true.

The business side of the impact is reflected in the concerns of investors who were standing by, reading, or having pledged funds for development of growing and production operations. They of course were told, and thought the LCB would go forward respecting big cannabis, and the all the ease of control, tracking and monitoring (regulating), that comes with larger, more centralized, better capitalized operations. It ain’t going to be so. Some investor may scatter, some may stick it out knowing that with small ball, diverse operations, many will be underfunded and crash. Then, they can come in and pick up the pieces.

Marcus Charles, President of the Washington Agricultural Industry Association, a grower and producer group, sees it this way, “This new change of course (by the WSLCB on number of licenses) provides a dis-incentive to the very folks that we need to enter this new market. The type of folks who will actually pay taxes and run this industry like a real business. If the Board has too many applicants, they should create judgment criteria based on other factors, rather than just to strip the industry of any real scalability.” Charles and his associates are set to be part of a large operation at the Port of Willapa in Grays Harbor.

In addition to the limit in the number of enterprises, the LCB also wants those who do operate to throttle down to 70% of potential. If the state finds we have a greater need for weed (like that?), they can move up to 100%. All of this kind of takes the “free” out of free enterprise, but let no one forget for a minute this is an illegal federal drug, so far.

Will Any New Legislation Help Any Of This?

We are detecting some pretty strong feeling that some form of MMJ rewrite will move. The end-game is obviously in the tax structure and money distribution.

As a backdrop to all of this it is important to remember that moving through the legislature are bills addressing not only what some call a “clean up” of the state’s MMJ law, but a bill clarifying expenditures of revenue, and a bill simply telling local government “you block the game, you don’t get the proceeds.” We have a few weeks of session left. What’s the guess for passage of any or all of these. We figure the best person with a comprehensive view of the regulatory scheme and the legislative action is an LCB member who is a former legislator. Former State Senator and LCB member Chris Marr politely answers the question this way, “Despite a lot of skepticism on my part about a short session, complex policy and ugly stakeholder dynamics, I (think)…a bill will move.”

And The Money?

If Colorado is any indication, if or once Washington ever really gets its recreational platform in place we will experience something similar to Colorado where they combined their MMJ and recreational regulatory and operational platforms. “Combined” is too simple a term, but they did have a well thought-out process to meld the two platforms. Colorado recreational sales exceeding predictions by 150% in the start up month. http://www.cbsnews.com/news/early-numbers-show-legal-pot-really-is-big-biz/

Today is the 45th day of a 60 day session, and the last week is just for arguing. Time to start to watch closely.

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