Retail ‘clustering’ causes a variety of problems

Supply and demand should dictate store locations

The cannabis industry in Washington has a number of problems, many of which stem from the regulatory structure created by under-informed lawmakers and state officials. This will likely also be the case for the five states that passed legalization measures in 2016 — California, Maine, Massachusetts and Nevada.

One such problem that is popping up and forcing action from local governments is the “clustering” of retail stores.

Clustering is basically what you would think, based on the common use of the term. There are main roads throughout Washington that, for several reasons, now have a number of retail cannabis stores located close together. Local residents and adjacent business owners have taken to filing formal complaints with their local city councils and the Washington State Liquor and Cannabis Board claiming that clustered retail cannabis businesses attract crime, loitering, illegal public consumption of cannabis and other such concerns. While some, if not all, of these concerns may be legitimate, the reasons cannabis businesses are forced into clusters can be explained by Washington regulations.

Unlike Oregon, Alaska and Colorado, Washington state officials made the regulatory decision to restrict the number of retail licenses rather than allow the market to act freely. Washington set up a system of allotments, both with the original round of retail licenses after Initiative 502 legalized recreational marijuana in 2014 and the 2016 increase following the passage of Senate Bill 5052. These restrictions were meant to limit access points to cannabis and force a relatively even distribution of stores based on the population of individual cities and counties.

The allotment system means each county at large and incorporated city are allowed a specific number of retail cannabis stores within their boundaries. Small cities are granted one or two licenses, while major cities like Seattle and Tacoma are allowed up to 42 and 16 licenses, respectively.

In theory, this may seem like a good idea to guarantee a certain dispersion in order to reach rural communities, but it has also led to a number of licenses being captured and squandered in jurisdictions that place bans or moratoriums on the cannabis industry. Washington does not allow these license allotments to transfer to alternative jurisdictions so many potential store opportunities have been lost by requiring a certain number of licenses to be designated to areas that refuse to allow them. A number of the remaining licenses are then forced into groups on the border between a jurisdiction with a ban and one without to reach certain major metropolitan areas and access those consumers.

Further, within these jurisdictions, either through the requirements of the Washington regulations or those imposed by the local government, the stores are restricted in where they can be located. For instance, the Washington Administrative Code requires cannabis licenses to be 1,000 feet from any school, park, library, etc. Localities are then granted the authority to adjust this buffer by increasing or decreasing its requirements as they see fit. Many local governments further restrict cannabis businesses to certain isolated zoning areas, typically industrial or commercial.

Denver, Colorado

After all these restrictions, most cities or counties have very narrow strips that are both commercially viable for business and compliant with the buffers. As such, areas like Highway 99 in Snohomish County, Aurora Avenue in Seattle and Rainier Avenue South between Renton and Seattle have become hotbeds for cannabis businesses. This trend can be found all over Washington.

The City of Seattle created an ordinance structure which requires a certain buffer zone between licensed cannabis businesses, in addition to the separation from schools and parks. This is the same sort of requirement Snohomish County has chosen to place on new cannabis retail stores. Specifically, in a response to a clustering concern on Highway 99, the Snohomish County Council determined by a 3-2 vote that new marijuana retail stores could not be located within 2,500 feet of existing stores, including those in adjacent jurisdictions.

State regulations are painting cannabis businesses into a corner and creating clusters. Local governments are then stepping in and instituting new requirements to the point where many businesses will be unable to find a viable location without taking over a currently licensed location. Without a change in policy, new businesses will have no locations left to find and existing businesses will not have the ability to scale up to new buildings.

For those who believe in and support the cannabis industry, let’s hope California, Maine, Massachusetts and Nevada see what is happening in Washington and choose to go another way. Excessive regulatory tinkering and overreach from governmental agencies are causing countless problems and setting the cannabis industry up to appear as a bad actor in the market. If regulators let the industry act as if it were any other product, these issues would be resolved by the laws of supply and demand.

 

Matthew Cleary is an attorney at Van Kampen & Crowe PLLC (www.vkclaw.com), practicing business and transaction law with a particular emphasis on the cannabis industry. He has represented cannabis businesses from highly trafficked retail stores to large producer operations and everything in between. Before practicing law, he was an enforcement officer for the Washington State Liquor and Cannabis Board.

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