By Chris Crew
Last month, I talked about the all the changes in the rules that have occurred in the past year since taking on my first I-502 client. Between the biweekly unveiling of new administrative codes and ever-changing interpretations of those codes, the rules are substantially different today than they were at the beginning of the licensing process.
This is a continuation from last month’s issue that contained sections on contractors, guns, canopy size and seeds. The following are some of the changes that my clients most regularly ask me about:
Old rule: At the beginning of the licensing process, the Washington State Liquor Control Board had very few rules surrounding the processing of trim or flowers into extracts. I believe the board was simply caught by surprise by the complexity and variation of extracts in the market.
New rule: Relatively recently, the Liquor Control Board promulgated some pretty reasonable rules. Now you need to use commercially-engineered equipment and an overall system that has been approved as safe by a licensed engineer. There are a number of other smaller requirements, but these two are the main ones you need to focus on if you are seriously considering making extractions.
My recommendation: Consider saving yourself a headache and buying a prefabricated unit that is completely assembled by the manufacturer. I have a client who has a state-of-the-art extraction setup and has made high-quality extractions for years in the medical market. Despite his finished product testing very well, he has had a lot of trouble getting the Liquor Control Board to approve his extraction equipment. Although I believe we will get it approved eventually, the big issue we are trying to overcome is that he made his own system out of commercially-machined parts from multiple companies. None of the companies want to sign off on the overall system because they contain some parts from the competition. Even though he likely saved at least $10,000 by piecing it together himself, the delays and hassles he has faced may not have been worth it.
Old rule: Initially the rules on advertising for I-502 businesses were very restrictive. The policy was that no advertising of any kind was allowed in areas that could reasonably be seen by children, other than the retail store’s single allotted sign.
New rule: Luckily for most I-502 businesses, the rules on advertising have become much more reasonable. You are permitted to advertise in magazines (not children’s magazines of course), the Internet, television and radio. You cannot have billboards.
My recommendation: I would stay away from physical signs of any kind, including billboards, signs on taxis or buses, signs on benches, or in malls. Any of these things could be construed as a “second” sign in violation of the signage rules.
Try to focus your advertisements on an audience that is over 21 years old. If your advertisements have any people, they need to be clearly older people — no young adults that could be seen as “kids” by a concerned activist or parent. People who oppose the legalization of marijuana could try to get your marijuana business in trouble with the hope that you will leave their community. To be safe, keep your advertisements in cannabis trade magazines, such as Marijuana Venture. You can feel most confident advertising in explicitly marijuana-focused magazines.
Old rule: The initial law did not talk about how trim would be regulated. It was going to be treated the same way as finished flowers, which did not make sense.
New rule: After hearing many complaints from various applicants and advocates, the Liquor Control Board made rules for trim including increasing the lot size to 15 pounds. The issue was that lot limits were five pounds per strain (the same size as the current testing lot for flowers) and each lot required individual testing. Since the trim sells for a fraction of the cost of the flowers, this created a system where a good portion of the cost of the trim was going to be a result of the testing requirement. The new rules allow you to test up to 15 pounds of trim of a single strain. This rule change has made the production and processing of trim more economically viable.
My recommendation: Consider planning out your yield to be close to the five-pound limits for lots of flowers and close to the 15-pound limits for lots of trim. If you are growing multiple strains, this planning is even more important. Although this may be difficult to predict the first time through, you can track your production through a few cycles and become more accurate at predicting your yields. Planning yields in a way that reduces your testing costs is in your economic interest.
More Canopy in the Future
Old rule: The initial law allowed every applicant to have up to three producer licenses and those licenses were for 2,000 (Tier 1), 10,000 (Tier 2), and 30,000 (Tier 3) square feet of canopy.
New rule: Now, each applicant is only allowed one active producer license and the canopy for all three tiers was reduced by 30 percent. The maximum canopy allowed is now to 1,400 (Tier 1), 7,000 (Tier 2) and 21,000 (Tier 3) square feet.
My recommendation: Everyone seems to ask me if they are going to be able to do their plan in two stages, if they are going to be able to get back their lost 30 percent of canopy, or if they will be able to use their second or third license. My speculation is that the answer to all of these questions is “no.”
Technically the Liquor Control Board says after you get licensed that you can apply for a change permit to allow you to change your canopy limit. The board has also said that if a need for more canopy is determined in order for the market to work, it will consider giving back the 30 percent of canopy or allowing people to use multiple licenses. That said, I think it is unlikely the Liquor Control Board will determine a need more canopy after concluding the first round of licensing. Do not assume the Liquor Control Board will give out any more canopy.
My advice is to use all of the canopy that you can in the first stage because there is no guarantee you get a second opportunity to expand. Also, do not base your business plan on the potential that any more canopy will be given out. My interpretation of the situation is that the Liquor Control Board already gave out far more than it was planning (hence the 30 percent reduction) and that the reason your canopy is worth so much is because no one can get any more canopy than what was allotted initially.
Chris Crew is owner and senior attorney at 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.