Washington Hashish: What to Look ahead to in 2021

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Washington Cannabis: What to Watch for in 2021

Since this is the beginning of the year and many customers have been asking me lately about the status of the Washington cannabis market, I wanted to weigh up my projections for Washington cannabis development in 2021.

WSLCB rules

While we might consider the Washington marijuana market to be fairly mature compared to many other states, the Washington State Liquor and Cannabis Board (WSLCB) remains vigilant (and in some cases militant!) And continues to seek input from stakeholders when it refines its policies and procedures. In early January, the WSLCB passed a number of rules that will affect licensees in 2021:

a. Emergency Rules (WAC 314-55-1055) – Marijuana Product Disclosure Form (effective January 6, 2021)

This rule obliges all manufacturers of THC products to disclose all compounds used in their manufacture and processing and is specifically aimed at eradicating violations of the vitamin E acetate ban (see below).

b. Emergency rules (WAC 314-55-1065) – LCB vitamin E acetate ban (formerly LCB vitamin E acetate ban) (valid from January 6, 2021)

This rule extends the ban on vitamin E acetate.

c. Emergency Rules (WAC 314-55-077) – Marijuana Processor License – Privileges, Requirements, and Fees (effective January 6, 2021)

This extends the emergency rule that allows enforcement action against any licensed marijuana processor who fails to comply with the ban on vitamin E acetate.

d. Emergency Rules (WAC 314-55-079) – Marijuana Dealer License – Privileges, Requirements, and Fees (effective January 6, 2021)

This extends the emergency rule, which allows enforcement action against any licensed marijuana retailer who fails to adhere to the Vitamin E Acetate ban.

e. Certificate of Conformity on the Permanent Rule (CR-103P) (regarding site conformity)

This rule implements laws that require the WSLCB to issue a Certificate of Conformity to a marijuana company under certain circumstances (a) applicants and (b) licensees. The certificate is issued to the applicant if the business premises meet the legal requirements for the buffer zone at the time the license application is submitted. The certificate is issued to the license holder if the business premises meet the legal buffer zone at the time of receipt of the license holder’s application for a certificate of conformity.

The certificate offers a safe haven as it enables the licensee to operate the business on site, even if an otherwise disqualifying factor in relation to the legal buffer zone arises later.

WA Social Justice Task Force

The Washington Task Force on Social Justice grew out of laws enacted in 2020 following the mass protests against social justice. The task force is still in its infancy and its developments are closely followed by the cannabis observer.

The Task Force recently adopted Operating Principles focusing on Anti-Racism and will establish its first working groups to address disproportionate scope, technical assistance and license types in the Washington marijuana market. The aim is to partially address the racial inequality in the early licensing rounds by making available up to 34 marijuana retail licenses from existing licenses (forfeited, revoked, or canceled) and available licenses not yet issued by WSLCB. US $ 1.1 million was also allocated to assist applicants with the licensing process and related business plan support.

We can expect the retail market to change significantly in 2021 if the task force continues and the WSLCB fulfills its legislative mandate. We can also expect increased education, particularly focused on communities and areas that have historically been disproportionately affected by the enforcement of marijuana prohibition laws.

Cannabis Compliance Advice

The WSLCB recently announced the makeup of its Cannabis Compliance Consulting team, which allows licensees to request an on-site visit to identify areas of potential violations to encourage voluntary compliance, rather than licensees waiting for the WSLCB discovers a guy and initiates formal enforcement. These 11 advisors are spread across the state and are available to manufacturers, processors, retailers, researchers and transport companies. While they are unable to impose administrative violations, we expect a lukewarm response in 2021 from most licensees who refuse to invite government or governmental agencies to join their business on compliance matters.

Enforcement actions

The WSLCB made a major announcement in late 2020 regarding the closure of the Praxis cannabis testing laboratory to falsify test results. The WSLCB will continue to root out fraud in all areas of the market. For those who are interested, there are dialogue sessions on cannabis tests where you can provide your input.

New financing agreements

After the launch of the social equity program, we expect increased investment as financiers lend funds and invest up to 49% of the shares in new retail licensees in social equity products. As a reminder, read this post on the difference between a real party of interest and a financier. These parties have different licensees disclosure rules, and you don’t want to be the license holder, real interested party, or financier on the wrong side of the WSLCB.

Industry consolidation

We have blogged in the past about the encroachment of the WSLCB on license holder qualifications and limitations, and nowhere is this more relevant than in cases where WSLCB regulations conflict with industry consolidation. Over the past few months we’ve been involved in numerous industry consolidation discussions and deals involving MSOs (multi-state operators) and international cannabis companies (especially Canadian public companies) trying to buy and sell shares in WSLCB licensees. We can expect more of this in 2021, and more resistance from the WSLCB to MSOs and overseas funds investing in the Washington cannabis market.

Hemp program

Washington’s hemp program is fairly mature due to the state’s experience with the marijuana industry. The WSLCB continues to hold its ground with respect to CBD products it considers within its jurisdiction, which is why foods and vape products containing CBD are only allowed in the federally approved marijuana market. No significant changes will occur on that front until the FDA issues further guidance on the status of CBD and related cannabinoids.

Litigation and Dispute Resolution

We expect the disputes between licensees, owners, financiers, suppliers and customers in the industry to increase. This is due in part to the impact of Covid and in part to the maturity of the industry. People who have transacted without a lawyer or a good lawyer argue about both their business relationships and the bad contracts that underlie them (if they even bothered to put a contract on paper).

We don’t expect the WSLCB to wear off at all in 2021, but there are plenty of opportunities for Washington and non-state cannabis companies to thrive in the market this year.