July proved to be a turning point for the legal marijuana industry in Washington State. First, as of July 1, 2016 all unlicensed medical marijuana dispensaries in Washington State were to close. Second, legal retail marijuana sales took a sharp leap. It will be interesting to see in the next few months if the sales jump is an anomaly or directly corresponds to the closing of the medical dispensaries.
The good news is that legal retail marijuana sales in Washington State now exceed $1 billion. In July alone, the state took in $23.5 million in excise tax, according to the website i502data. The burgeoning retail industry appears to be succeeding, yet hurdles remain.
I have already discussed the challenges of serving the medical marijuana community a prior post. Another big challenge for licensed retailers is how to build customer and brand loyalty. Recently, retailers were informed that certain loyalty programs were running afoul of the Liquor and Cannabis Board (the “LCB”) rules.
Many retail stores had been using paper punch cards as a way to reward customer loyalty. It appears, however, that these are no longer allowed and need to be discontinued. It is likely that the paper punch cards that were given to customers were seen as a type of “coupon”, which is not allowed per the LCB rules.
Thus, retailers will likely need to use electronic loyalty tracking programs rather than paper punch cards going forward unless the paper/plastic royalty cards remain on the retailer’s premises. Per the LCB rules, any customer loyalty tracking program must meet the following requirements:
- It must be open to all customers;
- It cannot be in the form of a coupon;
- It cannot involve any giveaways; and
- The final cost to the customer of any product provided as part of the program cannot be below acquisition cost.
Accordingly, food and beverage giveaways by retailers are prohibited along with the giveaway of any other product. Military, senior and student discounts will likely continue to be allowed if the above requirements are otherwise met.
Building brand loyalty can be integral to a retailer’s success. But, before commencing any advertising and/or loyalty programs, a licensee should consult with legal counsel and the LCB to ensure that their program is compliant.
For more information on the regulation of marijuana businesses, please contact Heather Wolf.