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Look Out for the Little Guy, Liquor Control Board is Told at First Hearing on Marijuana Legalization

Call it a Grass-Roots Thing – Hundreds of ‘Job Creators’ Pack Hearing Room as Regulators Consider Structure of New Marijuana Market

An enormous crowd packs the hearing room at state Liquor Control Board headquarters Tuesday night.

An enormous crowd packs the hearing room at state Liquor Control Board headquarters Tuesday night.

OLYMPIA, Jan. 23.—As hundreds packed the hearing room at state Liquor Control Board headquarters for the first hearing on the state’s landmark marijuana-legalization law, it seemed clear that there is a battle going on for the soul of a new industry. Will regulators protect the little guy? Will they devise rules that will allow the state’s newly legal marijuana regime to compete with black-market sales? And will they see the small growers and dealers who have operated in the shadows all these years as small businessmen eager to take their seats at the Chamber of Commerce?

Suffice it to say that it was those little guys who packed the room, and you could tell they were thinking like businessmen because they were already complaining about taxes. They filled every seat, stood along the walls two and three deep, spilling out into the hallway and the reception area – a crowd that easily could have numbered 500, if anyone had been counting. It was enough to make one wonder about the adequacy of the floor joists and ventilation system in the windowless boardroom. Dozens trooped to the mike in a hearing that stretched long into the night. Artis Falkner was one of the first, drawing whoops and cheers from the crowd when he declared, “I do think that it is really cool to see all of these entrepreneurs and possible job creators come in here and try to do something that is within the bounds.”

It was the first of six public hearings that will be held by the state Liquor Control Board as it launches a rulemaking process to implement Initiative 502, the marijuana-legalization measure approved by Washington voters last November. Washington was one of two states that opted for legalization of the widely used drug in the last election, flouting federal law that prohibits marijuana production and possession – an issue all by itself. The next hearing is set for Thursday at Seattle City Hall. Judging by the crowd that turned up Tuesday in Olympia, Seattle might be sorry it imploded the Kingdome.

Ahead of Colorado

Chris Marr and Sharon Foster of the Liquor Control Board address the crowd.

Chris Marr and Sharon Foster of the Liquor Control Board address the crowd.

This state, in a sense, is a step or two ahead of Colorado, where voters amended the constitution to legalize the drug and now a state task force is drafting a law for its Legislature to consider. In this state, as a result of the initiative, a law is already on the books. It creates a three-tiered marketing system much like that which is used nationally for the marketing of alcoholic beverages, with stiff taxes at each level that ultimately could impose a pyramided tax rate of more than 80 percent. The law leaves plenty of gray areas to be filled in by the state Liquor Control Board, which is contemplating a name-change to incorporate “Marijuana” or “Cannabis” to reflect its new mission. By August the agency hopes to have rules in place for growers, by September for processors and by December for the new retail establishments that will be allowed for the first time to sell marijuana legally to all comers – not just those who have medical-marijuana authorizations.

The high taxes and rigid market structure imposed by the initiative butt up against the rag-tag dealing and secretive grow operations that currently prevail in the marijuana trade. Now the agency must make the rules fit reality. “One of our concerns is that we don’t want the black market to flourish,” said Liquor Control Board Chairwoman Sharon Foster.

Out From the Closet

Artis Falkner tells the board: Look at all these job creators!

Artis Falkner tells the board: Look at all these job creators!

Certainly the fears are different these days. Sam Dodge of Pierce County drew laughter when he nodded to the state patrolman who watched from a corner of the room. “Two years ago your presence would have emptied the room,” he said. These days there’s a different kind of paranoia — it’s all about whether corporate interests, which can easily be regulated, will squeeze out the moms and the pops-with-ponytails. Several large-business representatives took notes in the back of the room.

Dodge and others told regulators they have to understand there already is an industry, definitely of a small-business sort. Some of it is aboveground, in the form of medical marijuana, now regulated by the state Department of Health, but most of it is still strictly illegal. The common message: If regulators think they can restrict the industry by limiting the number of grow licenses or imposing high costs on licensees, they better think again. And as a matter of decency it shouldn’t exclude those who might have run into a wee bit of trouble with the law. “In this room there are a whole bunch of people that have 20, 30 and 40 years of growing experience,” Dodge said. “They have been closeted. They would like to scale up. They are quality growers. They are ethical growers. You can take that however you want.

“They don’t want to get stepped on by a major corporation. They don’t want a tobacco company that comes in – what that will do is just to force all those people to continue to be closeted and continue to grow. They’re just going to do the same thing they’ve done for 20 or 30 years. They’re not going to change.”

Already Complaining About Taxes

The agency currently is soliciting bids for marijuana consulting services. Liquor Control Board staff says it knows very little about the product, or at least no one at the agency is willing to admit it. But from every corner of the shadowy industry Tuesday night came people offering expertise – medical-marijuana growers, dispensary owners, those who said they know how to assess and test product quality, and those who insisted they know plenty about the subject without coming right out and explaining how they know it. They said there is an important facet of the business even the authors of the initiative may not have understood. Under the tax structure imposed by the initiative, prices will be so high that legal sales may do nothing to eliminate the black market.

Right now an eighth of an ounce of marijuana might sell for $35 or $40 on the street or in a medical-marijuana dispensary, said David Meglemre of West Seattle. But under the taxes that will be imposed by the measure, if production costs remain the same, that eighth might cost as much as $83. Regulators will be fooling themselves if they think a marijuana tax stamp will convince the public to swallow a 140 percent price increase, he said. “It is obvious that wherever the state may fail to enact adequate regulations, marijuana black marketers and activists will be poised to exploit any shortcomings they may find. That being the case, and with public safety and welfare obviously the first priority of the Liquor Control Board, I am wondering if the Liquor Control Board appreciates the full gravity of what will happen if it fails to effectively establish competitive advantages over the current black market prices.”

Current estimates for the potential size of the marijuana market are probably too low, said Ezra Eickmeyer, lobbyist for the Washington Cannabis Association. Official state estimates at the time of the initiative campaign put the figure at 380,000, but he noted that there are somewhere between 130,000 and 200,000 medical-marijuana patients in the state. “That 380,000 figure would assume that that almost half of the 200,000 marijuana users in the state are medical marijuana patients, which I’m certain is not the case.”

Tammy Ramsey of Grays Harbor County suggested that the board might look for a way to compress the taxation of one of the tiers of the industry, the processors, because the initiative allows growers to hold processing licenses. If only one taxable event occurs, the cost might be reduced for the end user. Underproduction and overpricing could make the new legalized market unworkable, she said. “You have been trying to come up with a consumption rate. When you get that number, double it. The underestimation of marijuana is incredible, just like you underestimated how many people would be here tonight.”

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