WSLCB Rescinds Interim Policy Restricting Producer Licenses

The Washington State Liquor and Cannabis Board (WSLCB) rescinded interim policy BIP-02-2014 last week. This move overturns more than three years of cannabis licensing president. In effect, rescinding BIP-02-2014 enables an entity or its principals to hold up to three producer licenses, as originally intended in the WAC.

WAC 314-55-075(5), written by the WSLCB in 2013, states that “any entity and/or principals within any entity are limited to no more than three marijuana producer licenses.” However, the WSLCB created licensing restrictions that limited cannabis business owners to only one producer license. This restriction was aimed at managing plant canopy space, or the square footage dedicated to plant production.

The WSLCB received 2,858 applications in the initial 30-day marijuana producer application window in 2013. The total plant canopy for 2,858 applications would have produced more cannabis products than the anticipated consumer demand, as determined by the WSLCB in October 2013. The Board was very afraid of excess cannabis being sold into the black market, which led them to file the interim policy BIP-02-2014 to limit licenses. A major source of the board’s anxiety was their belief that if excess cannabis were to cross state lines then the Federal Department of Justice would view that diversion as a violation of the Cole Memorandum, giving them the justification necessary to use the courts, DEA or FBI to interfere with the State’s cannabis policies and licensing scheme.

Looking forward, many cannabis producers will now want to expand their production, but there is a catch. The WSLCB has not reopened the license application window and will not issue any new producer licenses. So, if no new licenses will be issued, where will these second and third licenses come from for most? Consolidation: the Washington cannabis industry can expect an imminent increase in the number of corporate acquisitions and mergers by heavily capitalized cannabis producers who can afford to buy-up the competition.

Even the simplest mergers and acquisitions (M&A) can trigger complex state and federal laws. If handled incorrectly, M&A transactions can quickly and easily lead to partners suing each other and third parties. At Gleam Law, our cannabis lawyers have experience with a wide variety of cannabis transactions, navigating the regulatory complexities, and guiding adverse parties through corporate transitions.