The challenges and lessons learned - State of Washington Department of Revenue Janetta Taylor, Senior Assistant Director of Operations June 2014
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The challenges and lessons learned State of Washington Department of Revenue Janetta Taylor, Senior Assistant Director of Operations June 2014
Legalized marijuana
• Marijuana marketplace
• Potency
• Marijuana legalization in Washington
• Who is responsible for what?
• Licensing limits
• Where are we now?
• LCB rules
• Challenges
• Lessons learned
2
Marijuana marketplace
• A growing demand
o 1990 – A half-million pounds seized in the U.S.
o 2006 – 2.5 million pounds seized in the U.S.
• Today’s marketplace
o Washington – 175 metric tons used annually
(386,000)
o 30 million pounds trafficked annually in U.S.
o 25 percent of market is under age 21
3
Potency grows with demand
• 1990 – 3 percent to 4 percent THC average
• 2008 – 8.8 percent THC average
o Sinsemilla – 11 percent to 13 percent
o 37 percent – Highest sample tested of THC
4
Marijuana legalization in WA
• Voters passed Initiative 502 in November 2012
• I-502 creates a comprehensive system of
growing, processing and retailing marijuana
for adults age 21 and older
• Decriminalizes possession of 1 ounce
of marijuana
o 1 ounce of useable marijuana for smoking
o 16 ounces in solid form
o 72 ounces in liquid form
5
Marijuana legalization in WA
• Creates a three-tiered system
for licensing, regulating and
taxing marijuana
o Producer license (grower)
o Processor license (prepares for
retail)
o Retail license (operates marijuana-
only stores)
6
Marijuana legalization in WA
• Taxation, revenue
o Imposes 25 percent tax at all three
(producer, processor, retail) levels
o Business and Occupation (B&O) and
sales tax also apply
o State’s Office of Financial Management
estimates revenue of up to $2 billion
over five years
7
Who is responsible for what?
Liquor Control Board
• Establishes rules for regulating and
controlling the recreational market
• Reviews and issues recreational
marijuana license applications
• Collects a 25 percent excise
tax on each level of sale
• Has no regulatory authority over
medical marijuana
8
Who is responsible for what?
Department of Revenue
• Accepts marijuana business license applications
on behalf of the LCB
• Recreational marijuana – Collects Business and
Occupation (B&O) and retail sales tax on
recreational marijuana-related business and
sales activities
• Medical marijuana – Collects retail sales tax on
the selling price and B&O tax on the gross
income of retail sales of medical marijuana
9
LCB Rules: Licensing limits
Production limits
• 2 million square feet – The maximum space
for marijuana production
• Applicants must designate the size category of
the production premises and square footage of
their premises designated as plant canopy:
Tier 1 Less than 2,000 square feet
Tier 2 2,000 to 10,000 square feet
Tier 3 10,000 to 30,000 square feet
10Licensing limits
Processing limits
• Businesses or associated entities are
limited to 3 processor licenses
• Processors are allowed:
o A maximum 6 months of average
usable marijuana
o 6 months average total production
on their premises at one time
11Licensing limits
Retail limits
• LCB determines number of retail
businesses per county depending
on consumption and population.
• Licensees determined by lottery
• Businesses limited to 3 licenses
• No licensee who owns multiple
businesses allowed more than
33 percent of licenses in any
city or county
12Licensing limits
Retail limits
• May not employ anyone under the age of
21 or allow anyone under the age of 21
into the premises
• Only allowed to sell marijuana, marijuana
products and paraphernalia
• Must be 1,000 feet from playgrounds, schools,
childcare center, recreation facilities, parks,
arcades, libraries or public transit centers
13Where are we now?
• The state received over 7,000
applications to produce, process
and sell recreational marijuana
• As of June 3, LCB has approved:
o 9 producer licenses
o 1 processor license
o 40 producer/processor licenses
14Where are we now?
Retailers:
• State held lottery in late April
to determine a list of potential
marijuana retailers
• 334 retail licenses available
• Estimate 20+ licenses will be
issued in early July
• First revenues expected
starting July 20
15Marijuana legalization in WA
• Public safety and education
o Establishes a THC bloodstream
threshold for marijuana DUIs
o Limits on store locations,
advertising and number
of outlets
o Earmarks revenue for heath
care, research and education
16LCB rules: Public safety
Producer structures
• Rules allow producer operations in
secure indoor and outdoor grows,
and greenhouses
Security and safeguards
• Alarm and surveillance video
requirements
• Strict transportation and record
keeping requirements
17LCB rules: Public safety
Local authority objections
• Substantial weight will be given to local authorities
during the license renewal process based on
chronic illegal activity of licensee’s operation
On-site product
• Establishes max. amount of marijuana allowed
on a producer’s premises at any time based on
the type of grow operation
18LCB rules: Public safety
Advertising restrictions
• Advertising restricted within 1,000 feet
of schools, public parks, transit centers,
arcades and areas where children
are present
• Cannot include statements or
illustrations that are false or may
be appealing to children
• Must include warnings about marijuana’s
intoxicating effects and impairment
19LCB rules: Public safety
Violation guidelines
• $1,000 penalty for minors frequenting a store
or facility
• Sets a tiered system of violation record over
a three-year period
Child-resistant packaging
Traceability
• LCB will employ strict traceability (software) to
track product from seed to sale
• LCB can match records to actual product on hand
20LCB rules: Consumer safety
Strict packaging and labeling requirements
• Limited servings and concentration
• Lot number
• Warning label
• Concentration of THC and net weight
• Usage warnings
Lab-tested and approved
21LCB rules: Consumer safety
Behind the counter storage
• No open containers or product handling
• Sniff jars when sealed, screened-top lids
Defined serving size
Limits on concentrates
• Single transaction limited to
7 grams of marijuana-infused
extract for inhalation
22Challenges
Feds: Marijuana is still illegal
• Banks are reluctant to accept money from
suspected marijuana businesses
o National banks must report known or
suspected criminal activity they suspect
involves money laundering or violates the
Bank Secrecy Act. See 12 CFR 21.11.
• This creates a “cash” industry
23Cash industry
How will the state safely
and securely handle cash
payments of taxes on
marijuana?
24Medical and recreational
marijuana remain regulated
and taxed differently
• Medical marijuana is still largely
untaxed and unregulated
• The Liquor Control Board
and Depts. of Health and Revenue
made recommendations to align
the regulation of the two markets
• The Legislature has not passed
laws aligning the two
25Challenges
Medical marijuana
• Competes with the regulated
and taxed recreational market
Minimizing illicit market
• Balancing product demand with
production and over-production
26Challenges
Some local governments have
banned marijuana businesses
• Washington State Attorney General:
Cities and counties have the right to
ban or regulate marijuana businesses.
27Challenges
Potency
• Lack of research to determine the
right potency for marijuana products
• Marijuana “medibles” have increased
in potency
• Increased potency is a
public safety concern
28Lessons learned
• Align your recreational and medical
marijuana regulations
• Give yourself adequate time to
implement a marijuana law
• Your start-up costs will be substantial
• Work with local governments
to educate, gain buy-in
29Lessons learned
• Work with banks and credit unions
to provide banking services
• Expect lots of media attention
• Expect lots of lawsuits
• Expect local government
resistance
30Questions?
More information:
• www.liq.wa.gov
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