Part I: Understanding the License Application Process Under Washington Initiative 502

by Susan Johnson and Claire Mitchell

As we reported last week, Washington Initiative 502 (I-502), a marijuana law reform measure which appeared on the November 2012 general ballot, won the popular vote passing by a margin of approximately 55% to 45%. Now that the initiative has passed, as of December 6, 2012, it will be legal for adults aged 21 years and over to possess up to “one ounce of useable marijuana,” 16 ounces of marijuana-infused product in solid form, 72 ounces of marijuana-infused product in liquid form, or “any combination” of all three.

In addition to legalizing the possession of a limited quantity of marijuana for recreational use by persons 21 and up, the initiative also establishes a licensing system for marijuana producers, processors, and retailers to be administered by the Washington State Liquor Control Board. Over the next year, the Board will be charged with promulgating rules and regulations to fully implement this new licensing structure.

Part III of I-502 establishes the licensing regime over marijuana producers, processors, and retailers and explains the procedures for obtaining a license. All license applicants will first be required to pay an initial application fee of $250. Thereafter, each licensed marijuana producer, processor, and retailer will be required to pay an annual renewal fee of $1,000.

The licensing provisions contained within I-502 are largely the same for marijuana producers, processors, and retailers; however, some differences do exist. For instance, the scope of the license will vary depending on the type of entity involved. Accordingly, a marijuana producer license permits the producer to sell marijuana at wholesale to marijuana processors and other marijuana producers. A marijuana processors’ license allows the processor to process, package, and label useable marijuana and marijuana-infused products for sale at wholesale to marijuana retailers. Lastly, the licensed retailer is permitted to sell useable marijuana and marijuana-infused products at retail in retail outlets to consumers. Significantly, under I-502, licensed marijuana retail outlets will be prohibited from selling any other products or services.

The initiative also provides different protections from criminal and civil liability depending on whether the licensee is a marijuana producer, processor, and retailer. The holder of a valid marijuana producer license will not be held criminally or civilly liable for the production, possession, delivery, distribution, and sale of marijuana to marijuana processors and other marijuana producers. A marijuana processor licensee will not be held criminally or civilly liable for the processing, packaging, possession, delivery, distribution, and sale of marijuana, useable marijuana, and marijuana-infused products to marijuana retailers. Finally, a validly licensed marijuana retailer will not be subject to criminal or civil penalty for the possession, delivery, distribution, and sale of useable marijuana and marijuana-infused products in retail outlets to consumers.

A decision by the Washington State Liquor Control Board to grant, deny, suspend, cancel, or renew a marijuana license is largely discretionary. However, any decision made relating to licensing may be subject to scrutiny under the Administrative Procedure Act. In addition, local authorities will have the right to object to the licensing of any marijuana production, processing, or retail facility that intends to operate within its city, town, or county.

Although many parallels can be drawn between the licensing structure created by I-502 for marijuana producers, processors, and retailers and that of alcoholic beverages producers, distributors, and retailers, it is important to note that I-502 expressly prohibits marijuana producers and processors from having any financial interest in marijuana retailers. This is similar to the three-tier system of alcohol distribution established in most states after the repeal of Prohibition. Up until legislative reforms were undertaken in 2009, Washington largely followed this three-tier system of alcohol distribution. However, since 2009, and even more so since November 2011, when Washington voters passed Initiative 1183, the alcohol three-tier system has been largely undermined in Washington and cross-tier financial and operational interests are allowed in many circumstances.

For additional information on the new licensing structure for marijuana producers, processors, and retailers within the state of Washington under I-502, you can refer to the Stoel Rives I-502 Cheat Sheet found here (PDF). Keep an eye out for Part II of Stoel Rives’ multi-part series on understanding I-502.

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