Previewing Washington’s Legislative Session

By Chris Crew

The upcoming legislative session is most likely going to be of great interest to everyone invested in the marijuana industry in Washington State. There are three general types of bills that will be proposed that will each have a tremendous effect on the industry. We will likely see some version of tax reform, bills restricting medical marijuana, and bills restricting the power of local governments to enact bans and moratoriums.

MEDICAL MARIJUANA

The future of medical marijuana in Washington has been a hot topic ever since the 2012 passage of Initiative 502. With recreational marijuana coming to the shelves of licensed retail outlets across the state, many legislators have been eager to regulate or restrict the medical marijuana system that has existed in parallel to the recreational system.

Although competing bills aimed at reforming the medical marijuana system passed the Washington State Senate and House of Representatives during the last legislative session, neither had the votes to pass in the other chamber before the legislature adjourned in March of 2014. The inaction came as a surprise to many observers — including Gov. Jay Inslee, who said he was “taken aback” by the legislature’s failure to send him a bill.

However, even though the status quo got a reprieve last time around, few expect the legislature to miss its chance again this year. That’s because the bar for amending I-502, the initiative that legalized marijuana in Washington, is about to become a lot lower. In the first two years after I-502 passed, legislators needed a two-thirds supermajority to amend the bill. But with Washington’s marijuana law reaching its second anniversary, the Legislature now needs only a simple majority to make changes.

What this means for the medical marijuana system in Washington is clear: change is coming. Last year the Legislature considered bills that would have severely restricted the amount of marijuana patients could possess and required them to register with the state. Even more significantly, one proposed bill would have prohibited collective gardens and forbidden any marijuana sales outside of the I-502 retail system, medical or not — in effect, forcing the closure of Washington’s hundreds of medical dispensaries.

These proposed changes were understandably opposed by those with a stake in the medical marijuana system, though there is a small silver lining for patients: formalizing the rules allows those with medical marijuana authorizations to grow marijuana and to possess more than an ounce without making them vulnerable to arrest and prosecution (currently medical marijuana is only an affirmative defense against criminal prosecution — police can still arrest patients). Moreover, given that change is inevitable, supporters of medical marijuana would be well-advised to push for laws that alter but do not obliterate the current system, and that preserve affordable access to this medication for the seriously and terminally ill.

BANS & MORATORIUMS

The upcoming legislature may make it illegal for local governments to ban or place moratoriums on the opening of state-licensed recreational marijuana businesses in their jurisdictions.

One version of the bill would create what the courts call “state pre-emption” in the entire area of regulating commercial marijuana. This would have the legal effect of overturning all of the bans and moratoriums that have been enacted by cities and counties throughout Washington State.

There are two strong reasons everyone in the industry should get behind state pre-emption bills. First, the overall marijuana distribution system is undermined when big sections of the state are not able to take part in the industry. If voters eventually deem the I-502 experiment a failure, all of our businesses will end. We need to ensure the system works, and that it works everywhere.

Second, this legislation ensures that your jurisdiction cannot change its mind in the future and take away your business. Politics change and that is currently an existential threat to every marijuana business in the state. Only legislation like this will end that threat and give the long-term security that our industry needs to survive and thrive.

This is a bill that will likely come down to a close vote. Lobbying efforts by business owners like yourself will be key to successfully passing this bill.

TAX REFORM

Some of the legislative proposals that tend to enjoy overwhelming support from the marijuana industry are bills that would reduce or change the tax burden. These include changing the excise tax into a special marijuana sales tax, splitting up the revenues from the excise tax between state and local governments, and reducing the excise tax in one way or another.

Unfortunately, our legislators in this upcoming session have tremendous pressure on them to vote down measures that reduce taxes to comply with the 2012 McCleary decision by the Washington State Supreme Court.

In the McCleary ruling, Justice Debra Stephens ruled that the state Legislature failed to fulfill its paramount duty under the Washington State Constitution to “make ample provision for the education of all children residing within its borders …”

This decision required the Legislature to come up with $3.5-7 billion per two-year budget period to help fund, among other things, school transportation, smaller class sizes, schools’ daily operating costs and supplies such as paper and books.

Last session, the Legislature failed to fund schools as the McCleary decision ordered, so on Sept. 11, 2014, the Supreme Court held the entire Legislature in contempt of court. The decision was unanimous, and will likely ensure that all bills will need to be revenue-neutral in order to pass.

The requirement of being revenue-neutral will most likely block attempts to reduce the excise tax directly or to give some of the excise tax to local governments (revenue sharing). My opinion is that these two bills are non-starters, and our industry should instead focus on changing the excise tax into a sales tax.

By changing the excise tax into a sales tax, it will substantially decrease the overall tax burden on marijuana businesses. Currently, because businesses face a steep 25% excise tax, the amount of the tax is not taken out of businesses’ incomes when factoring federal tax, essentially creating double taxation. By changing the excise tax into a sales tax, marijuana businesses will be able to reduce the income used to determine federal tax by the entire amount of sales tax paid, ending the current double taxation.

This is a bill that can save our industry a ton of money and be revenue-neutral (at least with the state). With the support of business owners like yourself coming together, this is a bill that can pass with little or no opposition.

Chris Crew is the owner and senior attorney of THC Law Firm, which represents around 60 marijuana businesses in Washington. He is the owner and lead speaker for Marijuana Workshops and is the counsel for the Marijuana League.