Understanding who qualifies as a True Party of Interest has tripped up more than one license-holder in Washington’s legal Cannabis industry. For years, spouses were also vetted and considered true parties of interest. In fact, we’ve written about it before. The Washington State Attorney General’s office cited the “long history of criminality” around Cannabis and the potential for a spouse to act as a “straw person” to a license as justification for this limitation. However, the spousal rule, as well as several other true party of interest classifications are going to change in October of 2020.
It’s been a long road to these changes. Stakeholder engagement starting in late 2018 coincided with new legislation in the form of Senate Bill 5318, focusing on education over punishment when it comes to WSLCB enforcement. Now that Senate Bill 5318 has been signed into law, the WSLCB Board has enacted these new changes.
Changes to WAC 314-55-035
The LCB claims the adopted rules accomplish the following:
- Modernizes the section title, redesigns and reorganizes the section structure;
- Modernizes language regarding which entities are considered to be true parties of interest;
- Removes the spousal vetting requirement;
- Expands definitions to include, “control,” “financial institution,” “gross profit,” “net profit,” and “revenue;”
- Clarifies and expands upon what persons or entities are not considered to be true party(ies) of interest;
- Describes the circumstances under which licensees must continue to disclose funds that will be invested in a licensed marijuana business;
- Incorporates by reference amendments to RCW 69.50.395 regarding disclosure agreements and intellectual property; and
- Establishes a new subsection to distinguish the requirements for financiers from that of true party(ies) of interest.
Ambiguity in the previous definitions of things like “Control” often left businesspeople confused about who qualified as a true party of interest. This lack of surety bred anxiety and concern as Cannabis license-holders tired to ensure compliance with the law. These definitions have been modified and, hopefully, provide clarity in Washington’s Cannabis market.
Notably, in the prior language, owners, proprietors, partners, members, managers, corporate officers, and stockholders had “and their spouse” appended when determining a true party of interest. This is no longer the case. Spouses are no longer true parties of interest solely based on their spousal status. However, married couples cannot be a true party of interest in more than five retail marijuana licenses, more than three producer licenses, or more than three processor licenses. And married couples may not be a true party of interest on retailer and producer/processor licenses.
At first brush, it appears that the shift towards education and compliance is being reflected in the new rules. Increased clarity and some commonsense exceptions allow for a more compliant market, which eases pressure on both businesspeople and enforcement. The full text of the changes to WAC 314-55-035 can be found here.
Gleam Law, PLLC has unparalleled experience when it comes to the WSLCB’s licensing process and requirements, as well as defending marijuana businesses against True Party of Interest violations.