On May 16, 2017, Washington State Governor Jay Inslee signed Senate Bill 5131 into law, initiating changes to the recreational and medical cannabis rules, which will become effective on July 23, 2017. Below is summary of the changes and how they affect the cannabis industry moving forward.
1. Consulting and Licensing Agreements. SB 5131 expressly allows licensees to enter into agreements for consulting services and the licensing of intellectual property rights such as trademarks, trade secrets and trade names. These agreements must be disclosed to the Washington State Liquor and Cannabis Board (the “WSLCB”) for approval. Noticeably absent in the legislations is clarification as to whether or not these agreements have to conform to all other I-502 rules and regulations. If not, SB 5131 assumedly would give licensees the ability to structure agreements so that the payment for consulting or licensing are tied to the licensee’s profits.
2. Purchasing Plants & Home Grows. Qualifying medical cannabis card holders who are entered into the State’s database will be allowed to purchase immature plants and clones and may also purchase seeds for the purpose of growing cannabis at home. The WSLCB will begin assessing the ability of recreational cannabis users to grow cannabis at home in light of the principals set forth in the Cole Memo.
3. Retail license expansion. Currently, retail licensees and financiers can hold up to three licenses. SB 5131 expands the retail license number to five licenses per person. However, if you are unreasonably delayed in the licensing process, the WSLCB can forfeit the license application.
4. Marijuana Research. The cannabis industry has been long attempting to conduct research on cannabis and its various strains, which was disallowed under the prior I-502 rules and regulations. SB 5131 opens the door to marijuana research and instructs the WSLCB to begin structuring a process for the issuance of research licenses. SB 5131 had a “companion bill” EHB 1857 which, in part, addressed research licenses. EHB 1857 (sponsored by local representative Cary Condotta) is still in the committee phase.
5. Advertisements. Cannabis licensees, especially retail licensees, are going to be restricted to the amount and the type of advertising that they can engage in after these new rules become effective. The legislature found that cannabis billboards and other advertisements were targeting children, young adults and non-residents of Washington. Therefore, licensees will now be disallowed from advertising anything other than: (i) trade name; (ii) location of the business; and (iii) the nature of the business. The advertisement must be affixed to a building or other structure and “transport advertisements” are expressly disallowed. Additionally, licensees cannot use a commercial mascot, toys, banners or inflatables to entice customers to come into their store.
6. Industrial Hemp. In 1938, the magazine Popular Mechanic published its February issue entitled “Billion-Dollar Crop” referring to industrial hemp for fiber, paper, dynamite and oil. Hemp has similar qualities to the cannabis plant and was described within the definition of “marijuana” in the Controlled Substances Act (and other earlier legislation), making it illegal to grow. Many speculate that hemp’s association with cannabis, and its subsequent status as an illegal substance, is due to the lobbying efforts of the timber industry which was threatened by the rise of hemp. Under a new Section within SB 5131, the WSLCB is directed to come up with a regulatory framework for allowing industrial hemp to be grown in Washington State.
7. The Gift of Cannabis. A lessor known fact of the prior I-502 rules is that gifting cannabis was still illegal. The State will now allow gifts of small amounts of cannabis so long as the delivery is done in a nonpublic place and the cannabis is in its original packaging.
8. Organic Cannabis. Many local farmers have been pushing for organic certification of cannabis for many years, and these farmers may soon get their wish. Under SB 5131, the WSLCB may now adopt rules to certify cannabis as organic, both under the standards provided by the federal organic program and the Washington state organic program.
9. Tribal Land. Licenses will not be issued if the premises is on tribal land or Indian country without the consent of the tribe or Indian country.
10. Inspections. Under current I-502 rules, inspections by the WSLCB were triggered mostly by either changes to a licensee’s site or operating plan or by complaints of violations. The new rules allow inspections for violations at any time and these inspections can result in fines for violations seen by the enforcement officer. These fines will include reimbursement for the State’s costs in conducting the inspection plus $1,000. These fines are in addition to the fines which already exist in the regulations, which include the forfeiture of the license, and SB 5131 allows the WSLCB to implement new fines for violations of the rules and regulations.