Editor’s note: CBE will be closely following what happens in the State of Washington, and how these events and decisions have led to a series of active lawsuits against the Washington State Liquor and Cannabis Board. See the second part of our series here.
A CBE staff report
When the State of Washington’s marijuana retail lottery finally happened, very few of the historic medical cannabis producers won.
Some had not applied worried that they would not be able to offer their current customers the types of products that worked for their conditions. Most medical retail outlets simply did not win the lottery.
Most of the applicants that won the lottery were not in the least bit prepared to open. They did not have real properties, funding, or the knowledge about cannabis retail. Retail outlets are still opening (for the first time) from the original lottery in 2013.
For the retailers that did manage to get open, they viewed the medical dispensaries as competition. Officials started to become uncomfortable with medical retail being regulated like any other business. Also, more entrepreneurs of all types started opening medical retail and the numbers of dispensaries started to rise.
The historical medical businesses had been asking for regulation for many years. Legislation was even passed in 2011 providing for regulation and licensing of medical retail businesses only to have these regulations vetoed by the Governor. In 2014, it was clear something was needed legislatively to solve the problem.
So, 2015 was a “long session” for Washington’s Legislature. Those are historically the years to pass omnibus legislation.
There were many influences in the 2015 legislative session from all sides. The bill that became the vehicle to carry the omnibus legislation became SB 5052 introduced by Sen. Ann Rivers (R-18). Eventually the bargain that was negotiated was that the historic medical retailers would need to be licensed by the newly re-named Washington State Liquor and Cannabis Board. In exchange the legislation was to allow for these retailers to get preferential treatment in licensing so that they could move over.
The criteria to judge was codified thusly (in SB 5052 6.1):
(a) The state liquor and cannabis board must develop a competitive, merit-based application process that includes, at a minimum, the opportunity for an applicant to demonstrate experience and qualifications in the marijuana industry. The state liquor and cannabis board shall give preference between competing applications in the licensing process to applicants that have the following experience and qualifications, in the following order of priority:
(i) First priority is given to applicants who:
(A) Applied to the state liquor and cannabis board for a marijuana retailer license prior to July 1, 2014;
(B) Operated or were employed by a collective garden before January 1, 2013;
(C) Have maintained a state business license and a municipal business license, as applicable in the relevant jurisdiction; and,
(D) Have had a history of paying all applicable state taxes and fees
After passage, the bill went to the Liquor and Cannabis Board for rule-making and implementation. Organizationally, the Board is very adverse from making judgements of picking winners. Doing so could result in lawsuit from a “loser.”
The decision was made internally by the Board that they were going to treat marijuana exactly like alcohol. They were simply going to allow anyone to apply for a marijuana retail license.
They would use the “priority system” established by the Legislature to guide who got processed first. The first to get the licenses were the “priority 1” entities using the criteria of SB 5052 6.1(a) (above). This simplified the process greatly from the Liquor and Cannabis Board’s perspective.
But, the problems of this were numerous. And various cities, including Seattle, freaked out.
The Liquor and Cannabis Board historically does not care about local regulations. They will give out licenses to whoever meets their criteria. Local issues are for the localities to work out.
The localities, even those who welcomed more stores, worried about unfettered proliferation. The lobbying arms of these localities spun into action.
The few 502 retailers that had opened liked the fact that there were not many of them. Further, several had paid large sums of money to buy licenses from the original lottery. Simply licensing anyone would make the value of a license nearly worthless. Several of these new retailers formed a new trade group consisting solely of 502 licensed retailers called CORE.
Additionally, the Liquor and Cannabis Board had lost their discretion to give out licenses in this manner. SB 5052 section 6 modified RCW 69.50.331 which is where the agency’s original licensing authority was codified and modified it into a priority system.
The law also mandated that the number should be finite and that the Board determine the “number of retail outlets holding medical marijuana endorsements necessary to meet the medical needs of qualifying patients” and to do this only. The law only envisioned moving the medical outlets over. It did not intend to open another round of licensing to the public.
The law also envisioned the licensing of these medical outlets to happen before July 1, 2016. After that, any medical retail that does not have a license is a felony. Due to this, the Liquor and Cannabis Board promulgated “emergency rules” and started the licensing process fully intending to license everyone in order of “priority” grouping — Priority 1 first, Priority 2 (medical shops that did not apply for licenses in the first round), and then Priority 3 (everyone else).
Licensing opened on Oct. 12, 2015. While they were taking and processing applications, pressure built on the Board to cap the number of licenses. They were, however in full process and operating by their original game plan. They sent out notices that applicants should not rush and that everyone would be processed because the licensing process “wasn’t a race.”
The CORE retail group filed a lawsuit and pointed out that the Liquor and Cannabis Board needed to follow the law that was passed, and that the law intended for the new licenses to have a numerical cap.
On Dec. 16, 2015, the Liquor and Cannabis Board reversed course and capped the number of stores that would receive licenses under SB 5052 at 222 — a very finite number to be sure. It would go a long way, though, to license the approximately 300 compliant dispensaries in the State of Washington as the law had intended.
The problem was, in its haste to get the licensing going, the “priority investigators” employed by the Liquor and Cannabis Board were never told to consider if a retail marijuana store actually existed. They were told only to prioritize applicants under the four priorities listed in SB 5052 6.1(a).
Any organization that could meet the criteria of “priority 1” in whatever fashion was given a priority 1 status. If an applicant could make a decent argument that someone in the organization “operated or [was] employed by a collective garden before January 1, 2013” and that someone maintained a business license, applied for a marijuana retail license and paid taxes, no matter how big of a stake that person had in the organization, they were issued a Priority 1 status.
After this, the only criteria used was who got to the point of “final inspection” first. It was indeed a race.
The historical medical retailers that had listened to the Cannabis and Liquor Control Board and delayed their application, or were simply unlucky enough to get lost in the shuffle, or were assigned a slow investigator, were now pitted against those applicants who knew how to “game” the system. They were treated exactly the same.
After passage of 5052, the City of Seattle started vetting retailers. In an attempt to stop the proliferation of new medical retail, some of whom behaved very similarly to the black market, the city did their own vetting of retailers based on SB 5052 6.1(a).
They identified over 100 retailers in the City of Seattle. The retailers that wanted to stay open were forced to prove that they met the criteria in the law. In addition, they had to show not only that they existed, but were operating before 2013, had complied with the law, and were zoned properly.
Seattle allowed 48 of the historical medical to stay open. The city closed more than 60. Of these 48, three received licenses from the Cannabis and Liquor Control Board. The remaining 19 licenses were given to, or are allotted to, entities that did not retail in the City of Seattle prior to 2013.
