What Happened to Washington’s Medical Marijuana Market?

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As several states with medical programs look to vote on recreational cannabis laws, Washington should serve as a cautionary tale.

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October 3, 2016

PHOTO: captivecookie

July 1 was the day Senate Bill 5052, known as the Cannabis Patient Protection Act, kicked in to full effect in Washington state.

It was also the day Washington’s Solstice Grown had to fire 52 employees.

“It was one of the worst business experiences that I’ve had,” says Alex Cooley, co-founder of Solstice Grown.

Because of Senate Bill 5052, Cooley had to shut down his medical marijuana production facility, which he had been operating as legally as possible since 2011 under Washington’s murky medical marijuana laws.

“52 good-paying jobs went away. Millions of dollars of revenue from my company went away. Millions of dollars of revenue for the regulated economy went away. And I’m just one company,” he says.

Cooley wasn’t the only victim of S.B. 5052. What was supposed to be a merger of two markets quickly turned into a swallowing of one by the other, with medical marijuana producer-processors and medical retailers as the meal.

“We feel that we don’t have medical cannabis right now,” Cooley says. “And the blame lays with everyone.”

The Plan

S.B. 5052 simply aimed to reconcile the mostly unregulated medical cannabis market with the more recent and regulated adult-use cannabis system.

With the passing of Initiative 502 in 2012 and the corresponding launch of the legal adult-use market one year later, Washington legislators found themselves “in the untenable position of having a recreational product that is tested and subject to production standards that ensure safe access for recreational users,” while having no such standards for medical cannabis patients, according to the bill. With S.B. 5052, legislators called for a pathway toward legalization for medical marijuana business owners.

The bill tasked the Washington State Liquor and Cannabis Board (WSLCB) with developing “a competitive, merit-based application process that includes, at a minimum, the opportunity for an applicant to demonstrate experience and qualifications in the marijuana industry,” that would allow cannabis business owners who did not already have the I-502 license to obtain one. That is the only type of license the state of Washington has ever granted. Three categories, or “priorities,” were created to evaluate which businesses were of merit. Criteria for priority No. 1 included: having applied for a retail license prior to July 1, 2014; having either owned, operated or been employed by a collective garden prior to I-502; having maintained proper state and/or municipal licenses, as applicable; and having paid all taxes and fees.

Rocky Transition for Retailers

For medical dispensary owners, the licensing process was a nightmare, according to John Davis, the former owner of Northwest Patient Resource Center. Davis had been operating his business legally in Seattle since 2011, was one of the biggest driving forces in the standardization of the Washington cannabis industry, and helped legislators draft the Cannabis Patient Protection Act. He’s now suing the WSLCB after being forced to shut down his business, claiming the WSLCB failed to create a competitive, merit-based system like the law stated and intended.

“What happened was a bunch of people came in, and they were not in business or had anything to do with medical, but they were able to make these applications by” gaming the system by submitting shady applications, he claims.

And he may have a case. In preparation for his November court appearance, Davis compiled a list of all new licensees and applications in Seattle, identifying several inconsistencies in many of them. For example, one Seattle property, an active car wash and detailing business, was listed as a business location on three licenses, two of which have been issued and are active. The third application’s approval is still pending.

As per its policy, the WSLCB did not comment on Davis’ allegations or the inconsistencies due to the pending lawsuit.

No Transition for Growers

This transition process for dispensaries, faulty as it may appear, was the better end of the deal. For medical marijuana growers, no path to legalization was even created.

That’s because S.B. 5052 demanded the WSLCB conduct a canopy study to determine what canopy size was needed to appropriately serve the market. The study, carried out by the University of Washington, found that the WSLCB had already surpassed the “needed” number of growers, meaning the WSLCB would not be opening up another licensing window. Moreover, those people who had applied for multiple licenses under I-502 saw their second and third applications automatically denied.

But even if the study had found that the current canopy size was below what the market needed, medical growers would still not have been able to apply for a license because the WSLCB is still catching up in processing the applications it received during the initial 30-day I-502 licensing window. “We have to finish working through all the applications that already existed [from I-502],” before opening another application window, says Mikhail Carpenter, spokesperson for the WSLCB.

Prior to I-502, no grower or dispensary owner was licensed in Washington simply because a medical marijuana license never existed. According to Carpenter, that’s because “the large-scale production of marijuana was never authorized under the existing medical marijuana laws.”

After I-502, growers who wanted to grow for adult-use needed to apply for a license, while medical growers still were allowed to continue their unlicensed operations.

“You were a medical grower, so why apply for a recreational license?” Cooley says. “The rules changed after it was too late. They closed the [I-502] licensing process 30 days after it opened. And this new law didn’t happen until two years later and took two years to implement.”

Cooley was fortunate to have been awarded an I-502 license. While he did end up having to shut down his medical facility, he was able to remain in business as an I-502 licensee. For those who did not already have that license, the options are limited: transition by trying to purchase an already licensed operation (which can be extremely costly as sellers have all the leverage in this situation), close their business, or (re)turn to the black market.

Lessons to Be Learned

Susy Wilson

What happened in Washington could happen in other states voting on recreational cannabis legalization and regulation this November, according to Cooley. California especially is vulnerable, since its medical marijuana market remains the country’s least regulated.

“We need to be the example of what not to do,” warns Cooley. “We get so excited about recreational, and we lose sight of what we’re actually doing.”

According to Susy Wilson, Cannabis Farmers Council founder and owner of W.O.W. Weed, cannabis business owners should be “wary” of recreational legalization laws and should be giving feedback about the potential impacts new legislation might have on their businesses.

Alex Cooley

“They should be involved in the formation of the new rules and laws,” she says. “I believe that Oregon took feedback much better than Washington did. Hopefully California and Nevada and other states will take feedback from other growers, because that’s really crucial.”

Everyone in the industry needs to be adaptable and be prepared for a lot of changes, says the WSLCB’s Carpenter.

“We set out a first set of marijuana rules in the state and within several weeks we were already making changes to them. This market will continue to evolve and adapt over time, and it’s always going to be that way,” he says.

For Davis, who lost his business and is now tied up in a costly court battle with the state, advice doesn’t come so easy.

“Should they vote for legalization? As a society, yeah. ... But as a business, it’s hard to give advice on that one. I understand if voters, growers and retailers are voting no.”