In my law practice, I encounter many individuals and business entities that wish to provide consulting services to licensed marijuana businesses. What is important to understand is there are limitations on the services that a consultant can provide pursuant to Washington State’s marijuana rules.
The Washington State Liquor and Cannabis Board (the “LCB”) defines a “consultant” as an expert who provides advice or services in a particular field, whether a fee is charged or not. WAC 314-55-010. If the consultant receives or has the right to receive a percentage of the profits from its marijuana business client then the consultant will be deemed to be a “true party in interest” and will be subject to the state’s residency and other licensing qualification requirements. Similarly, if the consultant “exercises control over” a marijuana business the consultant will also be deemed to be a “true party in interest.”
Consequently, if a consultant does not want to be considered a true party of interest, then they need to take care not to take an ownership, profits, or controlling interest in their client’s marijuana business. The likely purpose of the LCB’s rule is for the marijuana licensee to actually operate and control the business rather than having an unlicensed third party do so via a consulting contract.
Obviously, it can be a fine line between providing consulting services and exercising control over a client’s business. Thus, the parties should take care to clearly document their relationship. A consulting contract should include reasonable compensation and contract term length as well as scope of work, default provisions, etc.
Those wishing to provide consulting services to marijuana businesses in Washington should closely review the LCB’s regulations with their legal counsel to make sure that they are truly acting as consultants rather than as true parties in interest.
For more information on the regulation of marijuana businesses, please contact Heather Wolf.