Liquor Board issues first draft of rules for pot industry

Staff writerMay 16, 2013 

Entrepreneurs looking to get in on the ground floor of Washington’s legal marijuana market now have a blueprint.

The state Liquor Control Board issued the first draft Thursday of rules for the system of licensed, regulated and taxed cannabis that voters authorized in November.

The 46 pages of rules are as specific as labels requiring a state logo and warnings – “May be habit forming. This product is unlawful outside Washington State” – but they are also notable for what they leave for the market to sort out.

There’s no floor or ceiling on the size of business operations or the volume of pot they can sell. Nor is there a limit on the number of licenses to be handed out to growers and processors Dec. 1, although there will be yet-to-be-determined caps on the number of retail stores in each county, with lotteries if demand exceeds the local limits.

The liquor board plans to start with a 30-day window for growers, processors and stores to apply for licenses.

“This is an opportunity for all business types to jump in. It would’ve been easier for us to only allow large grows,” said Brian Smith, a spokesman for the liquor board.

Still, the proposals present some challenges for any mom-and-pop operation, starting with security requirements. Businesses will need alarms on doors and windows and 24-hour video surveillance capturing almost everything going on inside.

Liability insurance is a must, although the rules don’t specify how much. Also required are 25 percent taxes at each level of sale, which could require bank accounts – and many banks won’t cooperate with what is still considered a federal crime. The rules are silent on exactly how taxes will be handed over, and Smith said the board is hoping the federal government will provide direction on banking.

The state plans to trace marijuana “from seed to sale,” with the exact mechanism yet to be decided. Records will have to be kept at every step of the process including quality tests by independent labs and destruction of plant waste, both required by the rules.

The proposal mostly won praise from the lead author of legalization Initiative 502, Alison Holcomb of the American Civil Liberties Union, and some questions from an opponent of the initiative, Steve Sarich, who said unlimited size for growing operations could leave the pot supply outpacing demand and be diverted to the black market.

Sales outside the legal system or outside the state are exactly what the liquor board and Inslee want to avoid. They say either might draw a federal reaction.

But Smith said supply and demand quickly sorted themselves out after Colorado moved to a regulated medical-marijuana system, with many businesses folding. And Inslee gave the board’s general direction a thumbs-up, praising plans to closely track pot.

“I think they have been very diligent and very successful in coming up with a well-organized system, and I think it should be impressive to the federal government,” Inslee told reporters.

Applicants will need fairly clean criminal records. The rules would create a point system to tally up any convictions found by a background check. A felony conviction in the past 10 years or multiple misdemeanors in the past three years could be disqualifying, but marijuana-related crimes would come in for some special consideration.

The initiative set $250 as the fee to apply for a license and $1,000 a year as the annual license fee. The rules would let the board suspend or revoke a license or issue fines of up to $2,500 per violation.

Also notable from the draft:

  • A retail store could sell between 6 a.m. and 2 a.m.
  • Pot consumption would not be allowed on the premises of licensed businesses.
  • Marijuana could be grown in a secure indoor facility or greenhouse, but not in an open field.
  • Advertising would not be allowed within 1,000 feet of schools, parks and other places where children gather. Ads couldn’t mislead, promote “over consumption,” appeal especially to children or claim marijuana “has curative or therapeutic effects.”
  • A city or county could seek to block a license, but the board could reject the request.

“I think a number of people will start making business decisions based on this,” said Ezra Eickmeyer, a lobbyist for cannabis businesses who is cautioning them not to commit to investment decisions based on the early draft that is sure to change. “This is when any potential fighting actually begins.”

The board wants public comments on the rules by June 10 in time to file an official draft, hoping to have final rules in place in August and take applications in September.

Read the rules at https://lcb.box.com/initial-draft-rules and comment to rules@liq.wa.gov or by mail to Rules Coordinator, Liquor Control Board, P.O. Box 43080, Olympia, WA 98504-3080.

Staff writer Melissa Santos contributed to this report.

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