November 2013 Bar Bulletin
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November 2013 Bar Bulletin

Leap of Faith:

Operating a Legal Marijuana Business in the Face of Uncertainty

By Ryan Espegard


Washington voters approved Initiative 502 a year ago, which immediately resulted in big dreams for many would-be entrepreneurs. The press hyped the coming wave of investment as the "green rush" and compared it to the dot-com boom.1

On November 18, a 30-day window will open during which eager entrepreneurs can apply for a state license to produce, process or sell marijuana for recreational use. However, soon-to-be applicants have learned that numerous uncertainties regarding local and state regulations leave the potential success of their future businesses anything but predictable.

Counsel for such entrepreneurs, and to the ancillary businesses that will support them, should be prepared to help their clients navigate the potential business risks posed by regulations. While some unresolved issues are inherent due to the federal vs. state conflict concerning the legalization of marijuana, such as banking and taxation issues,2 other uncertainties have been created by the regulations adopted by the Washington State Liquor Control Board (WSLCB) to implement I-502 and by local municipalities.

The first item on every applicant's checklist is selecting a suitable location that satisfies the requirements of I-502, which require, for example, that establishments be at least 1,000 feet from schools, playgrounds, public parks and other facilities.3 The producer, processor and retail licenses all are tied to the applicant's specific property and an application would not be granted without that crucial information.

Further, the WSLCB is only holding open a limited 30-day application window with no indication that it will reopen at a later date.4 Thus, many hopeful applicants have already purchased or leased property intended for their businesses in order to guarantee that they be considered for licenses. However, securing the necessary property now can come with tremendous risk because many municipalities plan to enact zoning regulations pertaining to the industry, but have not completed the process.

For example, Burien has enacted interim zoning regulations on an emergency basis, but by their interim nature the regulations are only temporary and could be modified in the future.5 A different approach has been taken by cities, such as Redmond, that have enacted moratoria.6 The language of Redmond's moratorium indicates that it is temporary until permanent zoning regulations are adopted, rather than enacting an outright ban.

Even where cities have adopted permanent regulations, entrepreneurs cannot be certain the regulations will not be revised again in the near future. For example, Seattle recently enacted permanent zoning regulations that excluded 46 percent of the city's industrial zones as allowable areas, but during their vote council members indicated that they would re-evaluate the zoning within the year.7 The comments left a glimmer of future hope for some properties in the excluded industrial areas.

The WSLCB has indicated that it will grant licenses to applicants that meet state requirements regardless of local ordinances, leaving local zoning issues to be resolved separately between the licensee and the municipality.8 Given the limited 30-day application window, applicants will be applying for and receiving licenses even if there is no guarantee that their local municipalities will allow them to operate. Some applicants may be obtaining licenses with only the hope that they will be able to use them in the future.

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