10 years later, industry says Washington’s legal marijuana needs an update

Next year will mark the 10th anniversary of the passage of I-502, the ballot initiative that Washington voters approved 56–44% in November 2012, becoming – along with Colorado – the first states in the nation to take the plunge into marijuana legalization.

I-502 created a regulated market that generates hundreds of millions in tax dollars for the state through the sale of small amounts of marijuana and other cannabis products to those 21 and over.

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A lot has changed in the last nine years, but some key aspects of the policy remain the same, and the industry says it is time for updates.

“The 10-year anniversary of the passage of Initiative 502, in some ways, feels like it’s been a lifetime, and other ways feels like it was just yesterday,” said Vicki Christophersen, executive director of the Washington CannaBusiness Association. “We are really trying to look at this from that lens, and in terms of what do the next 10 years look like for the industry in Washington state? How do we set ourselves up? The entrepreneurs and risk takers that got into the industry here, how do we set them up for success for the next 10 years, which likely includes some form of federal legalization in a federal marketplace? In fact, even a global marketplace? What are the barriers that are keeping our companies from being able to succeed?”

At the top of the list of things marijuana companies need to succeed: changing the state law to allow for venture capitalists to take part in the industry.

The need for marijuana venture capitalists

“We are still one of only two states in the entire country that don’t allow investment dollars to flow into the industry from out of state,” Christophersen said. “That may seem daunting to some people, like somehow allowing that would allow, I don’t know, big tobacco or whoever to come into the industry. But the reality is, venture capital is a key, really, to launching a business. And that’s especially true with the marijuana industry.”

She says the average cost for a retail store alone is $5–10 million to get it started.

“We have to have a location and all the security that’s required, and then you have to secure inventory, and you have to hire staff, and all of those things have to happen before you can even open up,” Christophersen explained. “What we see is people really struggling to access capital. If you don’t have money yourself, or you don’t have a rich relative that lives here in Washington, you’re out of luck.”

That causes equity issues, which Christophersen says also hurts the marijuana consumer.

‘”We see this for brands on the processor side, brands that are really establishing themselves as things that customers really like — whether those are the products that help with headaches, or some health issues, but also products that are innovative and different, where you need that next million dollars to expand your brand,” she said. “We really believe that it is something that the state needs to look at about how to safely allow capital to flow, as it does with every other business.”

There is a lawsuit currently in federal court on the issue that was filed by a would-be investor in Idaho. The suit claims Washington’s law violates the U.S. Constitution’s Commerce Clause, so they’re keeping an eye on that outcome, but also pushing the change as one of their legislative priorities in the upcoming session that starts Jan. 10.

Because that is also a significant barrier when you look at the legal marijuana industry with a social equity lens.

“We absolutely agree that the system unintentionally left people out, and it’s something that has to be rectified. We’re very concerned, though, that if we give out a bunch of new social equity licenses, which we think there should be some issued, if we don’t fix some of these regulatory problems and these barriers that the businesses have, we’re going to have the same problems for any new licenses as the current licenses have,” Christophersen explained. “So we think it’s really important that alongside that, the very important conversation on social equity, we also look at how we make this regulatory system better so that everybody can succeed.”

Changes for the Liquor and Cannabis Board

“The other thing that had become really clear to us, and some view this as an attack — and I just want to start by saying I don’t view it as an attack. We started to look at the last 10 years at the Liquor and Cannabis Board — how it is constructed,” she said, specifically pointing to the fact that the LCB is made up of just three board members, as it has always been.

“Prior to 2012, the Liquor and Cannabis Board was the Liquor Control Board, and its job, primarily, was to sell alcohol and make money for the state. It wasn’t as much this, but what happened in 2012 is not only the passage of Initiative 502, but the passage of privatization of liquor sales,” Christophersen recalled, pointing to the LCB being tasked that same year with shifting out of only state-run liquor stores to private stores selling booze as well, and making sure that was all being done as it should be.

“The breadth of the work that they do expanded exponentially with the passage of those two initiatives, and what didn’t evolve was the board itself,” she said. “So one of the things that we’re going to suggest is that perhaps having just three board members is not enough for the scope of work that they have.”

They looked at other board models and came up with a formula they like.

“One that really stood out to us is the Gambling Commission. The Gambling Commission has five commissioners, appointed by the governor, and then four ex officio legislators,” Christophersen said. “So the legislators who are going to be taking on whatever it is that the Gambling Commission is working on, there’s some continuity and some conduit between the legislative and the regulatory work. That seems to work pretty well. And so we’re suggesting that the LCB be changed to match that.”

“It’s been a bit perplexing to us that some at the LCB have viewed that as sort of an attack on the agency. We don’t see it that way,” she said. “We see it more as how do we modernize this board to fit the scope of work that they have? So we’re going to be bringing legislation forward on that.”

Unregulated THC processed products

But the big issue is the battle over unregulated THC processed products.

“So the other issue we’re looking at is the explosion of what we would call unregulated THC processed products in the convenience stores and online,” she said. “This is as a result of sort of a loophole in the federal farm bill that allowed hemp to be legalized. And really, there are two separate problems, but they’re getting conflated in the public dialogue.”

One of the problems, she explained, is that the unregulated THC products are being allowed, or the enforcement is not occurring to keep them out of the unregulated market.

“So kids have access,” Christophersen said. “They are not tested, they are not regulated. We don’t know what’s in them. If you walk into a convenience store and buy what’s called a Delta eight THC gummy, you don’t know what’s in it because it’s not regulated.”

“On the other hand, the hemp industry and the adult use cannabis industry are doing a lot of work together to innovate on new and interesting things,” she added. “Some of these are health related products that have no intoxicant. They are all different CBD, CBG, CBN — there’s all these different things and they all have different properties. There are also different THC cannabinoids, there’s Delta eight, Delta nine, Delta 10, the hemp industry and the adult use cannabis industry are doing a lot of work together to innovate and bring safe products in the regulated market.”

But, the LCB has interpreted current law as not allowing that innovation on the regulated market.

“So we’re being told you cannot bring in hemp products into the adult use market and innovate,” Christophersen said. “The problem with that is that just feeds that illicit market, in our mind.”

“So what we’re going to do is bring legislation forward that clarifies that within the licensed and regulated industry. We can collaborate with the hemp industry and we can bring in products as long as they’re tested and safe and transparent to the public as to where they come from,” she noted. “That’s where that innovation should occur.”

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Christophersen added that the industry strongly believes the state needs to have a coordinated effort to enforce the rules on those unregulated products that kids can buy on the internet today.

View a full list of the Washington CannaBusiness Association’s 2022 legislative priorities here.

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