Cannabis Business Blog

Gregg Rodgers is a guest author and a member of GSB’s International Business Practice Group. 

Seattle, Washington, where I practice, is one of the most popular tourist destinations in the U.S.  Its natural beauty and cosmopolitan vibe are two of its biggest attractions.  But increasingly, Cannabis Tourism has been a draw.  That’s because Washington State, like Colorado, Oregon and Alaska, has legalized cannabis – also known as marijuana, for sale and personal use in the state.

But people who are not U.S. citizens[1] need to understand that these state laws do not protect them from extreme danger. The federal government still considers cannabis to be a “controlled substance,” and the purchase, possession and/or use of cannabis is still a federal crime that could result in denied admission, deportation, and/or being barred from return – even if state law says it is perfectly legal.

The Metropolitan King County Council voted on July 25th to end the moratorium on accepting or issuing permits for marijuana growers, processors, and retailers in unincorporated areas of the county. Additionally, per the council’s news release, legislation was approved which:

• • Limits growing, production, and processing facilities in the rural areas to zones with lots of 10 acres or larger.

• • Because Vashon has its own land-use restrictions, it is exempt from the rural limits.

• • Approves studies on potential retail and processing in specific locations.

• • Requires the County Executive to identify 10 new retail stores in neighborhood business zones.

• • Requires separation between retailers (1,000 feet) in areas where multiple shops already exist.

Washington law regulates the buffer zone requirements for licensed marijuana premises and their proximity to locations of sensitive use, namely, elementary or secondary schools; playgrounds; recreational centers or facilities; child care centers; public parks; public transit centers; libraries; or game arcades admitting minors. RCW 69.50.331(8). Washington state law though does not regulate the distance of licensed marijuana premises from one another. Therefore, the now-required 1,000 foot between retail stores is more restrictive than mandated at the state level. For an interesting read regarding the discretion of cities, counties, and towns to control such distance requirements, please see our previous blog post.

Interestingly, in The Seattle Times' coverage story, it was reported that “the state has allocated 22 additional retail stores to the unincorporated areas. The state has issued 23 producer, or farming, licenses in unincorporated King County. In contrast, 22 have been licensed in Seattle and eight in other King County cities.”

Ada Danelo is a Summer Associate at GSB's Seattle office. 

The University of Washington School of Law’s Cannabis Law and Policy Project hosted its first annual conference on Washington state marijuana policy on June 14, 2016.

Rick Garza, Director of the Washington State Liquor and Cannabis Board (LCB), and Seattle City Attorney Pete Holmes kicked off the Conference by discussing the following current policies and industry trends:

• • Use of pesticides on cannabis products. Garza described the regulatory issues that the LCB faces, and noted that one of the LCB’s new challenges is to ensure that cannabis products are safe and properly tested for pesticides. To address this, the LCB plans to work with the EPA and the Department of Agriculture.

• • Increasing market limits. By the LCB’s estimate, the market is sufficiently served by the 48 cannabis stores currently in Seattle, but Garza noted that the LCB plans to increase the market ban if they see demand. Holmes, on the other hand, commented that of the 48 stores allocated, only 31 are open, and that “we need substantially more,” adding that legal delivery services may be another way to meet that demand. The City Attorney also wants to ensure that applicants who are “sitting on” a license either use or lose it, which Holmes wants to work with the LCB to enforce.

• • Increase in tourism benefits hospitality and tourism industry. Holmes noted the significant increase in tourism to Seattle since legalization and how much it benefits hotels, restaurants, and the tourism industry generally. According to the City Attorney, the increase in tourism has created a need for marijuana lounges, since state law prohibits public consumption of cannabis.

The afternoon sessions featured cannabis producers, processors and retailers explaining the intricacies of their compliance with both state and federal law. Ian Eisenberg, owner of Uncle Ike’s Pot Shop, made a pitch for legalization, which he and the other retailers on the panel agreed limits underage access to cannabis – since legal stores turn away customers under 21.

Attorneys from various law firms also spoke about issues ranging from pesticide regulation and tax compliance to diversity in the marijuana industry. Andy Aley, Owner at GSB and Co-Chair of its Cannabis Industry Group, discussed the impediments to sales and marketing for marijuana producers and processors, noting that “it takes about six weeks to get a bud tender to even sample product,” and that “we need smart policy changes that allow the industry to mature and become more akin to the craft beer industry.”

On Wednesday, June 8^th, Governor John Kasich signed Ohio House Bill 523 to authorize the medical use of marijuana in Ohio, which will take effect in 90 days. While initially remaining quiet regarding his position on the issue, Kasich had earlier stated that he would follow the recommendations of physicians, but that he wanted to provide relief to children in pain.

Although medical marijuana will be legal in Ohio in September, it will take much longer to establish its rules for patients, growers and dispensaries (likely eight months). In the meantime, however, medical marijuana may be legally purchased in other states where it is legal and brought back into Ohio. Once the rules are established, out of state medical marijuana will no longer be legally transported into Ohio.

One distinguishing aspect of the new law is that it is still illegal to smoke medical marijuana in Ohio – vaporizers, edibles and oils are the only legal forms of its use. It should also be noted that recreational use of marijuana remains illegal and that employers will be allowed to fire employees who violate company policies against marijuana use, even if used for medical purposes.

Under the law, physicians who are certified by the Medical Board of Ohio may recommend medical marijuana to those suffering a number of medical conditions after attending at least two hours of training on diagnosing and treating conditions with medical marijuana.

Growers interested in growing medical marijuana will have to file an application with the Ohio Department of Commerce. Growers will not be allowed within 500 feet of schools, public playgrounds, churches, public parks or public libraries, and applicants with criminal convictions will be disqualified.

With reports of significant non-approved pesticide use by some in the industry, the LCB has increased its focus upon pesticides.

In addition to emergency regulations addressing product recalls and pesticide action levels, the LCB (via the Washington State Department of Agriculture) recently amended the list of approved pesticides.  Specifically, the WSDA added 29 pesticides to the list of allowable products and removed 27 products.

Bottom line:  Make sure that your house is in order.  Confirm that your current stock of pesticides only includes those on the WSDA’s approved list.  Note that you may “use up” any existing inventory of the 27 pesticides removed from the list, but cannot purchase additional amounts of these products.  Also, we are seeing increasing volumes of pesticide-related disputes and lawsuits, and will address how to best protect your business from pesticide litigation in a future post.

This article was first published on GSB’s Northwest Land Law Forum blog.

On May 3, 2016, the City of Hillsboro adopted new land use regulations in preparation for recreational marijuana uses of the product.  The city’s new code allows marijuana production facilities only in the General Industrial (I-G) and Industrial Park (I-P) zones.  However, such production facilities are not allowed in the city’s recently adopted Industrial Sanctuary (I-S) or the light rail industrial zones.  As a practical matter, this limitation in the I-S zone may turn out to be smart planning as the city has envisioned high energy users at these locations, and marijuana production could have had adverse impacts to energy infrastructure and availability in the area.

Development of industrial marijuana facilities in the I-G zone will allow flexibility for the use that can either occupy existing buildings or new construction. The city’s vision is the new uses might help solve the blight caused by out?of?date buildings with the result that those structures will be repurposed and refurbished.  Further, vacant land in the southwest industrial area and in older industrial parks elsewhere in the city will allow for construction of new buildings to serve the use.  Both refurbishment and new construction for marijuana facilities will be subject to the process and standards of the Development Review process.

Similarly, the I-P zone allows industrial marijuana facilities.  However, new buildings in the I-P zone are required to have concrete or cement masonry units construction only.  The city’s intent is to ensure that new development is consistent with the city‘s plan for well?designed, highest quality development, and the construction of “use neutral” buildings which enhance property values on nearby properties and better enable conversion to other higher value uses in the future.  While the city refers to higher value uses in the future, it is hard to imagine when 2016 Oregon market projections call for $481 million in legal marijuana sales.

Although production is not allowed in the city’s Station Community Business Park (SC-BP) and Station Community Industrial (SCI) zones, complimentary uses will be allowed.  For example, wholesale facilities and testing laboratories can occupy either existing buildings or new construction.  New construction will be limited to concrete or cement masonry units construction only, and subject to the process and standards of the Development Review process.

The city also adopted time, place and manner restrictions intended to prevent nuisance impacts to surrounding properties and the general.  Here are a few highlights from these regulations:

• • In the case of production facilities, views from the exterior of the building into the production area are prohibited.

• • Security features are addressed.

• • Odor mitigation for production facilities, including installation of activated carbon filters on all exhaust outlets to the building exterior; location of exhaust outlets a minimum of 10 feet from the property line and 10 feet above finished grade; and maintenance of negative air pressure within the facility; or an alternative odor control system approved by the Building Official.

• • Marijuana waste must be rendered unusable before it is disposed.

• • A recreational marijuana production, processing, testing laboratory or wholesale sales facility shall not be located within 100 feet of any single-family residential, multi-family residential, mixed-use, urban center or institutional zone.

• • For retail sales facilities, operation may only occur between the hours of 10:00 a.m. and 8:00 p.m., Monday through Thursday; and 10:00 a.m. to 10:00 p.m., on Friday, Saturday and Sunday.

• • And be sure to check the code for distances required from schools, public plazas and other specified areas.

For those of you “do-it-yourselfers,” take heed.  The city decided that home occupations for recreational marijuana facilities are prohibited.  And don’t expect a marijuana cart on wheels to drop off your product because mobile retail businesses are prohibited.

Ready to get started with a recreational marijuana facility in Hillsboro?  We can help navigate the land use process while you get down to business.

In a surprise move, the Metropolitan King County Council imposed a four-month moratorium on accepting or issuing permits for marijuana growers, processors, and retailers. The moratorium took effect Monday, April 25th, and will be subject to a public hearing within 60 days. No statement clearly outlining the primary concern regarding legal marijuana businesses has been issued by the council. Although Council member Reagan Dunn, who represents rural areas, “likened the lack of restrictions on growers and processors in the county’s rural residential areas to the “wild West.””

As way of reminder, while marijuana is legal in Washington, cities, towns, and counties can still ban marijuana sales and production. Also as way of reminder, unincorporated areas of King County are those areas outside of any city within King County. Such areas, cover 82 percent of King County’s land area.

The Seattle Times article is available here: http://www.seattletimes.com/seattle-news/marijuana/with-no-notice-king-county-slaps-ban-on-pot-businesses/

Washington State Bar Association is hosting its CLE program, “Marijuana Law: Changes in Regulation and Best Practices” seminar taking place next Tuesday, April 12, 2016 in Seattle, Washington.

The marijuana industry is a rapidly evolving landscape. The seminar will address changes and updates in the law, what constitutes medical marijuana, commercial best practices relating to contracts, and ethical considerations in running a cannabis law practice.

The seminar will kick off with introductions by program Co-Chairs, Andy I. Aley, Owner at Garvey Schubert Barer and Co-Chair of the Cannabis  practice group and Jared Van Kirk, Owner at GSB and Co-Chair of its Labor and Employment practice group. Emily Harris Gant, also Co-Chair of Garvey Schubert Barer’s Cannabis practice group, will lead off the seminar with reviews of Washington’s legislative and regulatory updates.

This blog post will be in two parts. The first part will provide the reader with an understanding of the laws and concepts associated with the taxation of the marijuana business. The second part will take these ideas and concepts and attempt to provide some practical operational guidance.

The First Part

The income taxation of a marijuana business, whether it be a producer, processor, wholesaler or retail establishment, is very different from a non-marijuana business. Everyone entering into the business will want to talk with a tax expert experienced in the taxation of a marijuana business in order to maximize the return on their investment.

There are several sections of the Internal Revenue Code (“IRC”) that impact the taxation of the marijuana business. Businesses, in general, in which the sale of merchandise is an income producing factor, calculate their taxable income in accordance with three primary sections of the IRC. Those are code sections IRC § 162(a), IRC § 471 and IRC § 263A.

New cannabis businesses face a myriad of challenges. The state of Washington’s fragmented and expanding approach to minimum wage and paid leave is only becoming more difficult.  Law and legislation in this area already impacts cannabis businesses in Seattle, Tacoma and Spokane, and may soon affect all cannabis businesses statewide.