Last week, the Washington State Liquor and Cannabis Board (“WSLCB”) very quietly adopted a proposed rule that will allow out of state individuals and entities to finance marijuana businesses within Washington State. Sort of.
In Out-of-State Investment in Washington’s Marijuana Market, we wrote how many cannabis industry stakeholders wrongly believed the WSLCB had already adopted new out of state financing rules and that those rules would allow out of staters to invest in and own Washington marijuana businesses. That was not the case when we wrote that post and it is not the case now either.
The WSLCB adopted rules that will allow out of staters gift and lend money to Washington marijuana businesses and/or to their owners. The new rules remove Washington State’s six month residency requirement for out of state gifting and lending yet they leave intact the requirement of criminal background checks and the sources of any gifts and loans will still need to be vetted by the WSLCB before any licensed cannabis business can take any of the money. These new rules do not revoke Washington States’ residency requirements for involvement in the cannabis industry. If you are from out of state and you want an equity position in a Washington marijuana business, both you (and your spouse, if you have one) must be able to show the WSLCB that you have at least six months of Washington state residency. Oregon Public Broadcasting interviewed me about those rules and you can listen to that interview here.
Even though out of staters still cannot invest in or own Washington marijuana businesses, these new rules will likely increase the cash flowing into Washington’s marijuana economy. That means we likely will see an uptick of commercial lenders (most offering high interest rates) put in front of the WSLCB for approval, and it is anyone’s guess as to whether the WSLCB further restrict how these loans (or even gifts) can be structured. It also means Washington State marijuana businesses are going to need to make tough, strategic business decisions about whether to take on sizable amounts of debt and that lenders will need to be thorough in conducting due diligence on their borrowers, especially when it comes to security, guarantees, and collateral.
For more on cannabis lending and due diligence check out the following:
- Marijuana Commercial Loans: Marijuana As Collateral is THE Issue
- The Top Ten Things You need to Know to Start a Cannabis Business in Washington State
- Marijuana Business Valuations: Still Mostly an Art, not a Science
And if you want to learn more about the one state that is truly open to out of state investors — even to investors from outside the United States — be sure to sign up here for the webinar we will be putting on today regarding investing in Oregon’s cannabis industry.