Legal roller coaster continues for marijuana businesses: new law set to shake up industry

Business has been steady at Cascade Herb Company in Bellingham since it opened last August. According to data from the recently renamed Washington State Liquor and Cannabis Board, taxable sales have grown each month at the shop and Justin West, store owner, said the number of younger customers has increased—a sign that the legal market is supplanting the black market.

West and other marijuana business owners in Washington are riding a legal roller coaster that will soon take another turn. Gov. Jay Inslee signed a bill in April aimed at eliminating the medical marijuana market. By July 2016, medical dispensaries will need to either close or obtain a license to operate under the recreational system.

The law’s purpose is to reduce the “gray market” of medical marijuana patients who are really recreational users. Some regulated stores see the law as leveling the playing field. They would no longer have to compete with medical dispensaries, which aren’t as tightly regulated as recreational stores and don’t pay a 37 percent state excise tax. Prices for recreational marijuana have come down during the last year, but they’re still a couple dollars more than medical prices, retailers say.

Business owners in both the recreational and medical industries expect the law change to help them financially.

The Liquor and Cannabis Board plans to issue retail licenses to some current dispensaries and that could help recreational marijuana growers, which currently outnumber retailers by more than four to one—the board has issued 751 producer and producer/processor licenses, but just 180 retailer licenses. And only 159 of those are currently reporting sales.

There is plenty of marijuana to go around for retailers. That situation has reversed from a year ago, when retail stores couldn’t keep product on their shelves.

Danielle Rosellison, community relations director for Trail Blazin’ Productions, a growing and processing business in Bellingham’s Irongate neighborhood, thinks more retail stores are necessary for the amount of marijuana being grown in the state.

But she fears the Liquor and Cannabis Board won’t issue enough new licenses to serve the market.

“I foresee the possibility of July 2016 as a bottleneck and hope that not too many medical patients are negatively affected,” Rosellison said in an email.

Leveling the playing field

Some local retailers are looking forward to July 2016 in hopes that it will give them access to more customers. That’s the case for Aaron Nelson, senior vice president of operations for 2020 Solutions, which has two recreational stores in Bellingham. Nelson wishes the new law would take effect sooner, he said.

Currently six recreational stores are reporting sales in Bellingham, according to Liquor and Cannanbis Board data, and about eight medical stores, said Kurt Nabbefeld, City of Bellingham senior planner.

Todd Russell, co-owner of Healthy Living Center, a medical marijuana stores at 2118 James St., in Bellingham, hopes to obtain a recreational license and thinks the change will be good for his bottom line for the same reason Nelson does—access to more customers.

“Our market is sick people,” he said. “We probably send 20 to 30 people a day to 2020 Solutions.”

Medical marijuana is Russell’s passion and he fears the new law will make it harder for his patients to get their medicine, he said. The shop’s reception area has a guest book filled with patient stories about marijuana helping with ailments including Crohn’s disease, epilepsy, cancer and PTSD.

“I wish people would really truly understand that there are sick people out there who are helped by cannabis,” Russell said. “We’ve had a plethora of patients die.”

Dispensaries in limbo

Russell is preparing for the new law by converting an unused room in the shop into a retail area with display counters and a separate entrance. He thinks the configuration would work well for serving both medical and recreational customers, but he doesn’t know yet how the licensing process will work.

Who will get licenses, how stores could obtain a “medical endorsement” and other rules are still being ironed out by the state Liquor and Cannabis Control Board, said Brian Smith, communications director for the agency.

He expects the state to be taking new license applications from medical dispensaries by January 2016, he said.

Until then, Healthy Living Center and other medical businesses are in limbo.

“We want to know. We’re chomping at the bit, talking everyday about what we need to do to remain a viable business for the community and for our employees,” Russell said. “We have an enormous amount of money tied up in this business.”

The bill, HB 5052, set out a list of priorities for which medical stores should get new licenses. It gives first priority to medical dispensaries that applied for a marijuana retailer license before July 1, 2014 and who have operated or been employed by a collective garden since before November 6, 2012. Next in line will be applicants who were operating or employed by a collective garden before November 6, 2012 but have not previously applied for a marijuana license.

But how many, and whether there will be local limits to the number of licenses issued is still unknown.

Several Bellingham dispensaries, including Healthy Living Center, applied for a retail license before July 1, 2014 out of concern about changing laws and regulation.

“It was out of fear, it really was,” Russell said about his store’s retail license application. “We are glad we applied.”

Hugh Newmark almost applied for a retail license, but decided not to. In response to the new law, Newmark, owner of Best Buds, a medical dispensary with two locations in Bellingham, co-sponsored an initiative that would keep medical marijuana as a separate system. The initiative didn’t get enough signatures for the November ballot.

“If I could go back I’d apply for a license,” Newmark said. “I never wanted to be a recreational store. Why would I have applied for a 502 license back then?”

Newmark thinks giving future licensing priority to dispensaries that applied for recreational licenses before July 2014 will result in a lack of shops that are focused on medical patients once the new law takes effect, he said.

Jeff Clark, owner of Top Shelf Collective medical dispensary, hopes to stay in business though he only meets half the board’s guidelines—he wasn’t operating before November 6, 2012.

Clark is an oddity in the medical marijuana business because he supported regulation for the industry. Clark set out to open a recreational store. When his retail license application wasn’t drawn in the lottery, he opened a dispensary.

“I opened up because otherwise I would have went broke and wouldn’t have been able to keep this building,” Clark said.

Though Clark didn’t intend to get into medical marijuana, he thinks patients need access to marijuana.

“I’m in favor of regulation, but I am in favor of medical marijuana as well,” Clark said. “I don’t want to see the medical marijuana patients who need and rely on marijuana as a medicine to be left out and hurt by this.”

Rule changes likely not over

In addition to HB 5052, which folded the medical system into the recreational market, state legislature also passed a bill that changed the excise tax structure. Originally, marijuana was taxed at 25 percent in each step of the supply chain: from grower to processor, processor to retailer and retailer to consumer.

Under the new law, which took effect in July 2014, the product is taxed at 37 percent, but only in the final sale to the consumer.

After 70 years of prohibition, these new laws probably won’t be the last changes to recreational marijuana in Washington state, said Smith, from the Liquor and Cannabis Control Board.

Clark tells his customers to speak up if the law isn’t working for them.

“We have another legislative session between now and July 2016, when this law is going to be implemented,” he said. “I’ve told all of our patients: If there are things you don’t like about it, you get one more chance to have your voices heard.”

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