Initiative 502, passed by Washington voters in November 2012, removed state law prohibitions against the production, processing and sale of marijuana. With state-level legalization, however, came extensive licensing and regulatory oversight of the retail marijuana industry by the Washington State Liquor Control Board. The I-502 basics include specific requirements for the operations of a licensed marijuana business, many of which are unique to the marijuana industry.
Insurance requirements: All licensees must obtain commercial general liability insurance and, if necessary, commercial umbrella insurance for bodily injury and property damage arising out of licensed activities. Policy requirements include:
Limits of not less than million.
Carrier rating of A – Class VII or better in the most recently published edition of Best’s Reports and licensed to do business in Washington.
Cover claims caused by any act, omission or negligence of the licensee and its employees and representatives.
Cover bodily injury, including disease, illness and death, personal injury and property damage arising out of the licensee’s premises, operations and products.
Name the Liquor Control Board as an additional insured.
Security requirements: Licensees are subject to extensive security requirements at the licensed premises, including:
All employees must display identification badges.
All perimeter entry points and perimeter windows must have a security alarm.
Internet-enabled video surveillance and recording systems for all controlled areas and, for outdoor grow operations, all perimeter fencing and gates.
Extensive traceability requirements, essentially requiring licensees to track marijuana from seed to sale. The Liquor Control Board will use BioTrackTHC software. Licensees may use their own tracking software, providing the software is capable of collecting and submitting the required information to the Liquor Control Board.
Start-up inventory limitations for producers requiring all non-flowering marijuana plants to be brought onto the producer’s premises within 15 days of commencing operations and prohibiting non-flowering plants from being brought on-premises during this time period. Thereafter, all plants must either be started from seeds or from clones of plants currently located on-premises, or purchased from another licensed producer.
Transportation requirements: Transportation of marijuana is strictly regulated. Notably, the regulations do not allow licensees to use third-party distribution companies to transport marijuana, and instead require licensees or their employees to transport product. Additionally:
Producers must record all transportation events in the traceability system, including the type and amount and/or weight of the products being transported; the name of the transporter; and the time of departure and expected delivery.
A complete transportation manifest must be kept with the product at all times.
Product must be transported in a Board-approved sealed package, which cannot be opened during transportation; product must be transported in a locked, safe and secure storage compartment secured to the inside body of the transport vehicle.
The transport vehicle must travel directly to the recipient and must not make any unnecessary stops in between.
Recordkeeping requirements: Licensees must comply with extensive recordkeeping requirements. All records must be kept on-premises for a period of three years and made available to the Liquor Control Board on request. Records clearly reflecting all financial transactions and the financial condition of the business must be kept, including:
Purchase invoices and supporting documents; bank statements and canceled checks for any accounts related to the business.
Accounting and tax records related to the business and each true party of interest; records of all financial transactions related to the business.
All employee records, including training records.
Records of each daily pesticide application to the plants or growing medium.
Records of the soil amendment, fertilizers or other crop production aids applied to the growing medium or otherwise used in the growing process.
Production and processing records, including harvest, curing, weighing and destruction.
Inventory records, including all samples sent to independent testing laboratories and the test results and all free samples provided to other licensees for the purposes of negotiating a sale.
Tax and reporting requirements: All licensees must submit monthly reports and payments to the Liquor Control Board, on or before the 20th day of each month, for the previous month. Producers must also report the following on a monthly basis:
Purchases from other licensed producers; current production and inventory on hand; sales by product type; lost and destroyed product.
Waste disposal requirements: All solid and liquid wastes generated during production must be stored, managed and disposed of in accordance with applicable state and local laws and regulations. Additionally:
Producers must evaluate waste against the state’s dangerous waste regulations (found in chapter 173-303 of the Washington Administrative Code) and determine whether the waste qualifies as dangerous.
Waste not qualifying as dangerous must be rendered “unusable” prior to leaving the producer’s facility by grinding and incorporating the waste with other ground materials so the resulting mixture is at least 50 percent non-marijuana waste by volume.
Quality assurance testing requirements: Samples from all “lots” must be sent to an accredited, independent laboratory for quality assurance testing, and no product may be sold or transported until required testing is completed. A “lot” is either the flowers from one or more plants of the same strain weighing not more than five pounds, or the trim, leaves or other plant matter from one or more plants weighing not more than 15 pounds. The Center for Laboratory Sciences on the Campus of the Columbia Basin College is responsible for certifying quality assurance laboratories.
Penalties for failing to comply with these requirements vary from license suspensions or fines for first time violations to license cancellations for repeated or more significant violations. Accordingly, licensees should be familiar with these requirements and develop and follow an operations plan that ensures compliance with the regulations.