On November 8th, citizens of California, Arizona, Nevada, Massachusetts and Maine will vote on whether to legalize marijuana. A vote to legalize marijuana in California could open the door for federal legalization given the potential size of the industry in that state. Additionally legalization in California will likely affect how Washington State continues to regulate its recreational marijuana industry.
The biggest challenges facing marijuana businesses in Washington State include meeting the State’s residency requirements, finding adequate capital, and finding a suitable location. In Washington State, marijuana business owners must be state residents, and with limited exceptions, the same is true for financiers and investors. Meeting state residency requirements for both operating and funding a marijuana business limits both the license applicant pool and sources of funding.
California’s Proposition 64 appears to include a less restrictive residency requirement. Although license applicants who are individuals must demonstrate that they have lived in California continuously since January 1, 2015, entities must only demonstrate that the “person controlling” the entity is a California resident. Thus, some out of state ownership may be possible in cases where the licensee is a legal entity as opposed to an individual. Additionally, the residency requirement sunsets in 2019. The ballot measure does not address qualifications for investors/financiers, however, as those requirements will be promulgated by Bureau of Marijuana Control next year.
California’s more lenient approach to residency may prompt Washington State to revisit this issue. Last year legislation was proposed in Washington to allow minority out of state ownership of licensed marijuana business. The legislation, however, did not make it out of committee. If California does end up allowing out of state investment in as well as out of state ownership of marijuana businesses then Washington may likely consider the same as permitting some out of state investment will help marijuana business struggling to find funding in Washington State.
California’s proposed legislation also allows for more flexibility in locating a licensed business. Proposition 64 does not include the 1,000 buffer requirement between marijuana businesses and schools, parks, playgrounds, libraries, etc. that is mandated in Washington State. Rather, Proposition 64 only prohibits licensees from locating within 600 foot of schools, day care centers and youth centers. The 1,000 foot buffer requirement has proven very problematic in Washington State especially in cities such as Seattle that have numerous schools and playgrounds. Washington would thus do well to consider reducing its buffer to 600 feet so that marijuana businesses would have more options in finding suitable locations.
The biggest effect of marijuana legalization in California will likely be on the federal level. Passage of Proposition 64 may finally demonstrate to Congress that legalization throughout the country is inevitable and that marijuana needs to be removed as a Schedule I drug under the Federal Controlled Substances Act. Only by removing marijuana as a Schedule I drug will the marijuana industry be able to obtain bank accounts, secure commercial loans and operate like any other legitimate business in the U.S.
For more information on the regulation of marijuana businesses, please contact Heather Wolf.