I-502 Passed; Now What?

On November 6, 2012, I-502 passed in Washington state. I-502 decriminalizes the possession of a small amount of marijuana and creates a regulatory scheme by which the state will license and tax businesses involved with the distribution of recreational (non-medical) cannabis. What does that mean for the cannabis business community in Washington?

Looming over all is the federal government. The Supreme Court of the United States has previously upheld the federal drug law as supreme over state medical cannabis law. The federal government may sue to have the law thrown out as unconstitutional. Even if it doesn’t, there may still be the risk of federal raids and federal prosecution for those that engage in the business (despite President Obama's seeming words of encouragement today). These risks will not go away unless something changes at the federal level, and all parties will need to keep them in mind. For now, though, we will put those concerns aside. 

New businesses that want to operate under I-502 will have to be a little patient. The State is not required to implement regulations and license businesses until December 2013. While those regulations may come sooner, we don’t expect it.

In general, the initiative discusses three types of businesses that would need to be licensed by the state: producers, processors, and retailers. Producers are the growers, processors are those that package useable marijuana and make edibles and similar products, and retailers are storefronts much like currently existing medical cannabis access points. All three will need to qualify for and obtain state licenses. There will be fees associated with applying for licenses and for actual issuance of licenses. There will also be new taxes. Every transaction in the cannabis supply chain — producer-processor, processor-retailer, retailer-customer — will be taxed at a flat rate of 25%. At the retailer level, this is in addition to the sales tax.

Those are the general guidelines, and we have to wait for regulations to answer the key questions. Primarily, how many licenses will the state grant, and what are the qualifications to obtain a license? At this point, we can only speculate that the licenses will be limited in number based on geography and population density. As for other qualifications, we will keep you updated as we know more.

For medical users and medical cannabis access points, nothing major changes. The new DUI went into effect earlier this month, and patients will need to take that into account before they drive. Apart from that, I-502 did not change in any way the existing medical marijuana laws in Washington. Qualifying patients may still use cannabis, and access points should still be able to operate in cities and counties that previously allowed them to operate. The state may fight to get the new excise taxes from medical access points. We will know later if the state wants to go down that path.

There are plenty of questions, and we will stay abreast of the issues. If you have more detailed questions on either the medical or recreational side, you should contact us sooner rather than later. December 2013 is closer than it seems, and those that want to engage in the business need to make sure that all their ducks are in a row before implementation of the regulations.


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