Marijuana

ICYMI: Big Changes Coming To Washington's Marijuana Laws

Be prepared, because these statutory changes will become law on June 23.

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marijuana samplesIn case you missed it, Washington State’s marijuana regulations are going to change significantly on June 23rd thanks to Governor Inslee having signed SB 5131 into law last month.

If you hold a Washington State marijuana production, processing, or retail license from the Washington State Liquor and Marijuana Board (“LCB”), you need to prepare now for the legal changes stemming from SB 5131. The following are some of the highlights from the bill of which you need to be aware:

Mandatory disclosure to LCB of all contracts for IP and consulting services. It’s been clear for a while that some licensees and their vendors or consultants were using IP licensing and consulting service agreements to get around financing and ownership restrictions by charging licensees crazy high fees on an indefinite basis that really just amount to secret profit sharing. All of that is likely to come to an end since SB 5131 requires all licensees disclose and submit to the LCB all such contracts prior to their taking effect. My firm previously wrote how the passage of SB 5131 would impact marijuana branding and intellectual property transactions and rights, but now we can expect the LCB to come up with even more rules regarding a licensee’s right to contract for IP licensing rights and consulting services, what third parties can charge and for how long, and what terms and conditions are going to be permitted. This law is going to make life much harder for licensees and third-party vendors because the LCB now has a right to weigh in on and reject those relationships and contracts.

Advertising just got a lot stricter. Currently under the rules, licensees are banned from advertising marijuana or marijuana products within 1,000 feet (as the crow flies) of a school or other sensitive use area, as set forth under WAC 314-55-050(10). This largely prevents advertising marijuana products by radio, TV, or in publications likely to be heard or distributed pretty much anywhere children frequent. This is why advertisements in Washington State show up only in certain areas of town or in adult-only publications. SB 5131 extends these already onerous advertising prohibitions to include not only marijuana products, but to also include advertising marijuana businesses themselves. Licensees now need to be cautious about advertising their marijuana business in any medium where their ad could end up within 1,000 feet of all of the sensitive uses listed under the rules.

SB 5131 also makes the following changes to advertising regulations:

  • No advertising on cars. The use of “transit advertisements,” which includes any marijuana advertisements on public or private vehicles, is prohibited.
  • No targeting tourists. Advertisements and marketing practices may not target “persons residing outside of the state of Washington,” representing yet another blow to Washington’s already ostensibly stagnant marijuana tourism marketplace.
  • 21 plus. All advertising must contain text stating that marijuana products can only be purchased by persons 21 and older.
  • Don’t market to kids (again). Marijuana licensees cannot market to kids and cannot “use objects such as toys or inflatables, movie or cartoon characters, or any other depiction or image likely to be appealing to youth.”
  • No mascots. Marijuana licensees cannot use commercial mascots outside of or near a licensed marijuana business. “Commercial mascots” include humans, animals, or mechanical devices used to draw attention to a business, and specifically includes inflatable tube displays, persons in costumes, and sign spinners.
  • Limited outdoor advertisements. Outdoor advertisements are limited to text that identifies the marijuana business “by the licensee’s business or trade name, states the location of the business, and identifies the type or nature of the business.” And these kinds of advertisements can’t have any depictions of marijuana or marijuana products at all.
  • Limited indoor advertisements. Indoor advertisements in other places of business are only permitted where minors are not allowed, such as bars. Under SB 5131, marijuana advertising is now also explicitly prohibited in arenas, stadiums, shopping malls, state fairs, farmers’ markets, and arcades.
  • No billboard advertising, except by retailers. Retailers will be the only marijuana licensees permitted to use billboards, but like all outdoor advertising, they too may only include text identifying their name, location, and the nature of their business on these billboards, and nothing else.

You can now own up to five retailer stores.  SB 5131 allows retailers to own up to five retail storefronts, which is up from only three stores under current law. Plus, the debacle of selecting retailers based on “medical marijuana priority” is now gone. Existing retailers may (and no doubt will) purchase other licensed retailers and re-brand them with their own name, which may create all kinds of headaches around franchising.

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Changes for producers and processors. Though medical marijuana qualified patients in Washington are already permitted to grow marijuana in their homes for personal use and may form a state-registered collective to grow medical marijuana together, there has been no legal means by which these patients can buy marijuana plants because licensed marijuana producers are prohibited from selling marijuana to anyone who doesn’t hold an LCB license to produce or process. SB 5131 changes this by allowing “qualified medical marijuana patients and designated providers to purchase immature plants, clones, or seeds from a licensed producer.” This means marijuana producers can now legally sell immature plants, clones, and seeds to medical marijuana patients. However, “to purchase plants or clones, the patients and providers must hold a recognition card and be entered in the [state] medical marijuana authorization database.” Patients who don’t register with Washington State’s medical marijuana database cannot obtain a recognition card and may only purchase seeds.

SB 5131 also requires the LCB to adopt regulations for designating marijuana as organic, similar to the federal law “organic” designation. This is important for cultivators and the integrity of their products since marijuana cannot otherwise qualify for the federal organic classification because it’s still federally illegal.

Though the LCB still needs some time to craft rules around these new legal mandates, these statutory changes will become law on June 23. This means now is the time for you to 1) make sure your advertising complies with these new standards, 2) get ready to disclose all of your consulting and IP licensing agreements to the LCB (and get ready for the new red tape around that process), 3) start paying attention to the upcoming qualifications for “organic” designation if you’re a producer, and, 4) if you’re a retailer looking to expand, consider opportunities to purchase other retailers.

Hilary Bricken bio photoHilary Bricken is an attorney at Harris Bricken, PLLC in Seattle, and she chairs the firm’s Canna Law Group. Her practice consists of representing marijuana businesses of all sizes in multiple states on matters relating to licensing, corporate formation and contracts, commercial litigation, and intellectual property. Named one of the 100 most influential people in the cannabis industry in 2014, Hilary is also lead editor of the Canna Law Blog. You can reach her by email at hilary@harrisbricken.com.

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