SEATTLE • When Colorado and Washington launched their pioneering marijuana industries, they imposed strict rules in hopes of keeping the U.S. Justice Department at bay. Five years later, the industry says it has been over-regulated — and lawmakers in both states aim to ease the rules.
“There’s a saying in the business world: Pioneers get slaughtered, and settlers get fat,” said Greg James, publisher of Marijuana Venture magazine, based near Seattle. “These rules have made the entire industry very inefficient. We’re going to get left in the dust unless we change some things pretty quickly.”
Regulators in Colorado and Washington originally decreed that businesses would track plants and products with bar codes. Regulators would approve money invested to ensure it was not tied to criminals. Pot operation owners would have to live in-state and pass background checks.
Eight more states have legalized recreational pot, and California, Nevada, Oregon and Michigan have taken a more permissive approach to out-of-state ownership and investment.
Colorado loosened rules to allow licensed businesses to have up to 15 out-of-state owners, and lawmakers from both parties want to further open it to include ownership by publicly traded companies and to limit background-check requirements. A similar measure was vetoed by then-Gov. John Hickenlooper last year, but his replacement, Gov. Jared Polis, has indicated support.
Washington lawmakers are considering a dual approach: Ease financial restrictions and handle rules violations more leniently, so businesses won’t lose their licenses for such things as sloppy recordkeeping. Three dozen have had their licenses canceled since 2015, and 32 face revocation notices, according to the Washington Liquor and Cannabis Board.
One measure pending in the Democratic-led Legislature would open the industry to out-of-state ownership and allow businesses to become bigger, with a caveat: Any licensees hoping to take advantage would have to agree to let their workforce unionize.
Those that do could have up to 40 percent of their ownership held outside Washington. They also could get two more marijuana licenses, allowing them to have up to seven retail shops or up to five growing and processing licenses, said the main sponsor, Sen. Rebecca Saldaña.
Investors could hold up to 10 percent of the business without undergoing background checks, though their names still would need to be disclosed.
“Banks don’t give lines of credit in our space, so we’re limited to private investors in the state of Washington,” said Ryan Kunkel, chief executive of Have A Heart, a chain of marijuana stores that is letting its workers unionize. “It’s a tiny pool of investors, and it’s stifling our ability to expand. Meanwhile, there’s a massive industry expansion taking place in every other state.”
A proposed overhaul of Washington’s regulatory enforcement is a compromise between the Washington CannaBusiness Association and the Liquor and Cannabis Board.
The association argues that enforcement has been aggressive and uneven. Its director, Vicki Christophersen, helped organize an unsuccessful effort by lawmakers to oust former prosecutor Russ Hauge from the three-member board.
The legislation would create a program through which businesses could seek the board’s advice on compliance issues without risking penalties, and it would require inspectors to give licensees time to fix a problem before issuing a citation, unless the violations concern public safety, sale to a minor or repeat offenses.
Businesses could face cancellation if they accumulate multiple violations for certain offenses, such as failing to properly tag plants, over two years, rather than the current window of three years — giving them a clean slate sooner.
And “true party of interest” rules, which require transparency in who owns, controls and profits from licensed marijuana businesses, would no longer come with automatic license cancellation. The rules have been a backbone of Washington’s regulations and a key way for officials to ensure criminal organizations don’t have a hand in the legal market. But even the board has acknowledged they’re overly strict.
In some cases, marijuana business owners struggling to make payroll infused personal money or investment from others into their business without having it vetted by the board, said board Director Rick Garza. That can lead to automatic cancellation, even if the money came from a clean source, Garza said.
When the businesses were asked why they didn’t notify regulators, they said they didn’t have time to wait months for the board to approve the money, he said.
“We want to make sure the enforcement structure is fair,” Garza said. “We started off really conservative, and you can see that over time that’s made it difficult for some.”