Washington’s Cannabis Industry – The Woes and What’s Next - Part 1

Season 3, Episode 4 – Cannabis is a hot topic—and big business—in Washington State. What we knew a month ago, is now old information. The Washington cannabis industry is ever-changing and ever-evolving—as are the laws that govern it. So what’s new? What’s changed? What must everyone digest? And more…what’s up with oversupply, tracking, diversion and the Sessions effect? In this first of two parts podcast, JDSA attorney Lindsey Weidenbach zones in on Washington’s Cannabis Industry – The Woes and What’s Next - Part 1.

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Announcer:  This is JDSA's Law Talk. This is the program that gives you the straight facts on our laws and how they affect your everyday personal and professional life.

Host:  Cannabis. We think we know what's happening in Washington's cannabis industry, but, by the end of this discussion, that could all change. Why? Why is this so volatile, and what should you know about it?

In this episode of JDSA's Law Talk, attorney Lindsey Weidenbach is back as we discuss the Washington cannabis industry, the woes and what's next. Lindsey, so good to talk to you as always.

Lindsey:  Nice to talk to you, too.

Host:  This is a ... I was going to say it's a fluid industry, but it's not really a fluid unless you're talking about edibles, but it is ... This is an ever-changing industry, and there's so much to keep on top of.

Lindsey:  Yes, it's constantly changing.

Host:  All right. Coming up next, we're going to talk about how the industry has taken, some would say, a downturn and maybe peering into the crystal ball a bit?

Lindsey:  Correct.

Host:  Coming up next, we'll talk about the cannabis industry, where we are right now, and where the arrow is pointing. That's coming up next right here on JDSA's Law Talk.

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I'm Clint Strand, talking with attorney Lindsey Weidenbach about the cannabis industry and where we are right now. Lindsey, when the cannabis industry started, legally, here in Washington it went great guns. Lots of expansions. Lots of optimism, but that may have changed a bit.

Before we get to that, though, let's get to the basics. When we hear the cannabis industry, what does that primarily include? What are we talking about here?

Lindsey:  Right. And Clint, that primarily includes producers, which is Washington's word for growing cannabis.

Host:  Sure.

Lindsey:  Processors, those are the folks that take the dry cannabis and turn it into lots of fun things. And then you have your retail store owners.

Host:  Okay. So that's what we're talking about with the industry?

Lindsey:  Mm-hmm (affirmative).

Host:  Now, we're one of only nine states that approved cannabis for recreational use, but cannabis is being used for so much more than that.

Lindsey:  Oh, yeah. Medically, there's about 30 states that have some level of medical cannabis that's legal.

Host:  So in these states, what is the bulk of the industry then?

Lindsey:  The bulk of the industry that we're seeing is flower in recreational, and that is your bud, your smokable bud. The bulk of the industry in medical states is more of a liquid or a cream.

Host:  Well, now that this industry has flowered in the state of Washington ... I know.

Lindsey:  So many good puns. So many.

Host:  I'm just getting started. Let's move on here. Let's talk about this industry. As with any growing industry, there are growing pains, so what are some of the continued challenges?

Lindsey:  Right. When the industry first got started, it really took off, and now you're seeing that plateau and the fall. We have oversupply, which is driving prices down. Our tracking system has had a lot of issues here in Washington that we'll get into. We have some diversion issues. Washington and Oregon, Oregon's having a lot of that. And then what we're calling the Sessions Effect, which is the recision of the Justice Department's Cole Memorandum.

Host:  Because, of course, this was all predicated upon, if not tacit, implicit approval from the federal government saying, "Okay. You do what you do over there. We're not going to meddle in this directly." There is some consternation, some confusion, or at least some worries about that.

Lindsey:  Yeah, and we knew that with this administration change from Obama to Trump that we were going to see something come down. A full recision was a bit of a surprise, and you can read more about all of these topics on our blog, which is at jdsalaw.com.

Host:  That's right. So, let's do a deep dive right now on this. Let's start with one of the factors that you mentioned: oversupply. Supply and demand, when there's too much, the prices go down. Those folks selling it get the blues when they're thinking about their green, so what are we talking about when we say oversupply?

Lindsey:  What we're talking about, Clint, is more licensees, more canopy. Licensees took years to get their grow operations up and running. Now, those thousands of licenses are actually operating, so you're seeing a ton more product and not more consumers necessarily.

Host:  Okay. How are shop owners looking to rectify or at least adapt to this?

Lindsey:  Well, we're having some issues that we'll get into in session two. A few of those are that the counties and cities have placed bans on retail stores, so certain markets are just closed to us, but ways that we're trying to correct the market are reducing square footage of growers allowed. So if you're not using it, you could lose it. If you're licensed for 30,000 square feet but you're only using 20, they're going to knock you down to 20.

Host:   Okay.

Lindsey:  They're talking loosely about ending license transfers. Right now, if I had a marijuana license, I could sell it to you and then you could take over my operations and continue. There's some loose talk about that going away. I'm not sure that I'm convinced that that one's going to go.

Then, there is also, right now, there has been since 2014, there's a moratorium on licenses. They're not issuing any more licenses.

Host:  Okay. Talking with attorney Lindsey Weidenbach about cannabis and recent struggles with the industry. Coming up in just a bit, we'll talk about struggles with the state's tracking system, why it's been glitchy. Also, diversion, what does that mean and why, if you want cannabis to remain legal in Washington, it's something you should be worried about. All that and more. It's coming your way next, right here on JDSA's Law Talk.

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COMMERCIAL BREAK:  Cannabis law, it regulates marijuana production, sale, and use. At JDSA Law, we help growers, producers, and retailers understand this emerging industry. This is how we make your life better. Committed to you since 1946. JDSA Law.

Announcer:  You're listening to JDSA's Law Talk brought to you by JDSA Law, one of the largest full-service law firms in North-Central Washington.

Host:  If you'd like to read more in depth articles on important legal topics, read through our news, articles, and blogs at jdsalaw.com

The woman I'm talking to has written quite a few blogs on said blog. She's Lindsey Weidenbach, and we're talking to her today. Lindsey, thanks for being with us.

Lindsey:  Thanks, Clint.

Host:  What's your favorite blog post that you've written so far?

Lindsey:  It's got to be the one that I recently did on Jeff Sessions and his recision of the Cole Memorandum.

Host:  Which deals with the marijuana industry?

Lindsey:  Yes, it does.

Host:  I think we'll get into that fairly soon, right?

Lindsey:  Real short. Yeah.

Host:  Okay. First, let's talk about recent challenges with the marijuana industry, the cannabis industry, growing pains, if you will. This tracking system that was supposed to keep track of all this greenery that we're making here in the Emerald State, what's wrong with that?

Lindsey:  Gosh. I could talk about this for so long. BioTrack was our first traceability software contract. The state did not reup it. They switched to a company called MJFreeway and Leaf -

Host:  MJFreeway?

Lindsey:  MJFreeway, and their product is called Leaf Data. So they switched to Leaf, and that was supposed to be rolled out on October 31st. It didn't happen, and BioTrack was not inclined to keep their system up and running in the interim. So licensees were forced to sometimes hand write their logs for their traceability system and turn those in every two weeks, whenever they had the time, essentially.

The BioTrack software, if you had a paid version of it, had a way to get that information to the LCB, so there were folks that didn't feel this as much as others, but some people were literally hand writing their traceability.

So every plant that's over eight inches has to be tagged and tracked from seed to sale, so imagine doing that by hand, the manpower that that took.

Host:  And once that comes online, are you supposed to transfer all of those records that you did by hand into the system?

Lindsey:  I don't believe that they're making licensees do that at this moment.

Host:  Because that would feel just backbreaking, but still, enormously inconvenience.

Lindsey:  Enormous. And it's also a huge deal because, if you think back to October, November, December, we still had the Cole Memorandum, and part of the Cole Memorandum said, "Sure, you guys can do this. You can grow legal marijuana, but you have to be able to track your system." So we had a lot of people that were scared that the federal government was going to use this as an excuse to come into Washington. We didn't see that happen, but that was a huge fear.

Host:  Knowing where all these plants are would be very valuable information for people that might not have the industry's best interests at heart. How safe is this information?

Lindsey:  It's been hacked recently a number of times.

Host:  Oh, dear.

Lindsey:  Yeah. And the state's pretty sure that it's not somebody looking for your data. It's somebody looking to take down the legal marijuana industry as a whole. I went to Cannacon in February and Jay Inslee spoke, and Governor Inslee said that the intel that they have is saying that the hackers are interested in taking the market out completely, not necessarily stealing data. Their perp is somebody who's maybe connected to mafia or gangs or illegal operations. That's what they believe.

Host:  So, we don't know what their modus operandi would be, but it's information that they would use for really nefarious purposes later on down the line?

Lindsey:  Right.

Host:  Well, that just certainly makes you feel good if you're a cannabis operator. Again, that's just where we need to keep it until we get more information?

Lindsey:  Yeah, and this is going to be a problem down the road because breaks in the traceability system create a situation where a licensee can do nefarious things. They can do bad things. They can divert their product for instance.

Host:  Which brings us to diversion. It's a fancy term for cannabis ending up where it shouldn't, right?

Lindsey:  Right. And this is another point on the Cole Memorandum, if you were growing marijuana in Washington, it needed to stay within the borders of the state. Whatever state you're in, that's where your cannabis needs to stay.

Host:  Right. But if you're selling the cannabis for an incredibly low price compared to other places and people are paying more for their cannabis in a state where, perhaps, you have to jump through more hoops to get it, that supply is going to flow where the demand is greatest, right?

Lindsey:  Right. That's definitely one of the issues with diversion. When the system was down, and traceability software wasn't tracking seed to sale, you're also going to see product just sort of disappear. It creates an opportunity for folks to see the black hole and divert their product to either the black market or out of state.

Host:  Now, preventing this diversion was a priority of the Obama Administration, which you said before. But that's when the rules were fairly clearly delineated. Growers and processors knew where they stood, what boxes they need to check, and hoops they needed to jump through.

You mentioned earlier that U.S. Attorney General Jeff Sessions rescinded those playing rules if you were, you call them the Cole Memorandum, right?

Lindsey:  Right.

Host:  So, it feels like we're just introducing chaos into the whole industry here. Is that the intent? Or is that, more appropriately, I suppose, is that what growers and manufacturers and sellers are feeling?

Lindsey:  It's definitely what they're feeling, and it's what I was going to say when you said the word chaos. Isn't that what they're intending? That's definitely what we're feeling. The general sense, every time I talk to another attorney in the space and my clients, the general sense really is, "Stay the course", but it's a little more tenuous.

Host:  But, Lindsey, we're talking about the federal government here, and the great thing is, we're talking about a union of 50 states. Our state, it looks like, is committed to the laws that the people of the state of Washington want on the books.

Lindsey:  Absolutely. And Jay Inslee reiterated that in his speech at Cannacon, and we have AG Bob Ferguson, who is very much on our side. They have invited Jeff Sessions and his folks to come to Washington to see our industry, to meet our people, and that invitation has been rejected.

Host:  Has been rejected?

Lindsey:  Yes.

Host:  Well, good thing we have Bob and Jay on the case, though.

Lindsey:  Yes. They're ready to fight for us.

Host:  Well, so much more to talk about with this subject, and we will, but coming up next, we'll bring it all together from what we have talked about up untill now. It's cannabis. It's on the docket on JDSA's Law Talk.

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Host:  If you'd like to hear a discussion about another legal topic that's affecting you personally or professionally, make sure you listen to other episodes of JDSA Law Talk at jdsalaw.com.

We're talking cannabis with featured attorney Lindsey Weidenbach. Lindsey, let's bring it all together. Lots to talk about today, but, as we think about what we have discussed so far, how would you like to leave this?

Lindsey:  You know, the cannabis industry continues to be complex, but the real message is the inspiring nature of my clients and the industry. They take hit after hit and they keep getting back up. They really believe in this industry, and so do I. So, hopefully, we'll go through another hurdle, we'll get there, we'll bound over it, and the cannabis industry will get back on its feet.

Host:  Lindsey, lots to talk about, again, into the future, but thanks again for joining us.

Lindsey:  Thanks so much.

Host:  And thank you for joining us for this episode of JDSA's Law Talk. Now remember, if you have a legal matter and require solid legal advice, connect with a member of the JDSA Law team at jdsalaw.com. You can also hear Law Talk episodes on other topics and submit your questions or suggestions for a future show.

I'm your host, Clint Strand. Thanks again for joining us on JDSA's Law Talk.

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