Washington LCB Puts New Limits on Marijuana Production

The Washington State Liquor Control Board (LCB) today issued a message on its Listserv notifying cannabis production applicants that they will be restricted to just one license to produce and that they will be permitted to operate at 70% of total expected production.

Today, the Washington State Liquor Control Board (LCB) issued a message on its Listserv notifying cannabis production applicants that they will be restricted to just one license to produce and that they will be permitted to operate at 70% of total expected production.

The message from the Board states as follows:

The Washington State Liquor Control Board (Board) today approved staff’s recommendations to limit the number of individual marijuana producer licenses to one and initially limit production at 70 percent, clearing a path for the agency to begin issuing producer and processor licenses. 

Today’s Board action clears an obstacle and allows the agency to begin issuing marijuana producer and processor license in the coming weeks,” said Board Chair Sharon Foster. “We believe this is the most fair and equitable way to get the market up and running.” 

In its marijuana enforcement guidelines issued August 29, 2013, the Department of Justice required that states ensure a tightly regulated and controlled market to prevent diversion of product to other states, sales to minors, and other concerns.

The LCB used available consumption data supplied by its consultant, BOTEC Analysis Corporation, to craft production limits in its rules to meet initial consumer demand without over-supplying. The rules were based on BOTEC’s input that the state can capture 13-25 percent of the overall market in the first year of recreational sales. According to BOTEC, additional production is likely necessary for the state to capture an increasing percentage as the market refines and matures.

Agency rules (WAC 3214-55-075 (8)) currently state that “if the total amount of square feet marijuana production exceeds two million square feet, the Board reserves the right to reduce all licensees’ production by the same percentage or reduce licensee production by one or more tiers by the same percentage.”

The LCB closed a 30-day application window for marijuana licenses on December 20, 2013. During that period, the LCB received 2,858 marijuana producer applications. The plant canopy of these applications far exceeded the plant canopy set by the Board in its rules. Of these applications, over 900 involve a party that filed more than one marijuana producer application. The rules currently allow for up to three licenses per licensee.

In an effort to reduce the plant canopy for marijuana production, the LCB intends to file an interim policy that limits any qualified entity or principals within any entity to one marijuana producer license. If any entity or principal has more than one marijuana application pending, LCB staff will contact the applicant to offer them the option of withdrawing their additional applications for a refund or having their additional applications put on hold for up to one year or until the Board determines whether additional marijuana producer licenses will be granted.

Bottom Line: If you were planning on having a 30,000 square foot marijuana grow in Washington State, you will now only be limited to a 21,000 square feet grow area (70% of 30,000) unless and until the LCB decides otherwise. The general lesson here for those in the cannabis industry in Washington (and elsewhere) is that cannabis regulations are going to be a constantly moving target for quite some time and that one of the tricks of this trade will be to maintain business flexibility to allow for these types of changes.

One of our jobs as cannabis business lawyers is to work with our clients in figuring out what must be done now and what can wait until later. Be sure to make your leases and service contracts flexible and calculate for extensions. This latest regulatory shift by the LCB is just one of many, and it only reinforces the benefit of delaying certain things whenever possible. 

Update: One of our cannabis business lawyers, Hilary Bricken, was interviewed for this Reuters article on this last minute change, and she had this to say about it:

“It’s coming too late in the game,” said Hilary Bricken, a Seattle-based marijuana business lawyer. “Many growers made decisions on properties six to nine months ago and are now going to pay the price.”

Obviously, these sort of last minute changes make doing cannabis business only more difficult.