Recreational Marijuana Sales Commence in California, What Will This Mean for Marijuana Businesses in Washington State?

The big news for 2018 is the statewide legalization of marijuana in California. Adults in California can now legally grow up to 6 marijuana plants for personal use and possess up to one ounce of marijuana. The recently enacted Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) creates the general framework for the regulation of commercial medicinal and adult-use cannabis in California.

Buying legal recreational marijuana in California, however, will not be easy at least until more retail stores are licensed to operate. As of January 1, 2018, only 90 businesses have received retail licenses. These stores are concentrated in San Diego, Santa Cruz, the Bay Area, and Palm Springs. Neither Los Angeles nor San Francisco have yet enacted the local regulations necessary to issue state retail licenses within their jurisdictions.

Other cities such as Fresno, Bakersfield, and Anaheim have banned recreational marijuana sales. California, like other states that have legalized marijuana, allows cities and counties to prohibit marijuana sales. As a practical matter, this will likely leave a dearth of legal marijuana outlets in the more rural and conservative areas of the state.

Although it may still be months before California’s legal marijuana industry really gets underway, the fact that the most populous state in the U.S. has legalized marijuana will undoubtedly affect Washington State and the rest of the country. It would certainly appear that any attempts at federal enforcement of marijuana laws in states that have legalized will become even more politically fraught now that the largest economy in the U.S. will be regulating the growing and sale of marijuana within its borders.

Additionally, Washington State may end up considering changes to some of its own regulatory restrictions in light of California’s recent legislation. One key difference between Washington State and California’s regulatory system is that California allows vertical integration and Washington does not.

In Washington State, a marijuana producer and/or processor is prohibited from holding a retail sales license and vice versa.  Washington state did this to ensure that the marijuana industry was not dominated by a few big players. But, the lack of vertical integration results in a somewhat inefficient marketplace as well as increased enforcement costs for the State in regard to ensuring that producers and retailers truly act independently. Thus, Washington State will likely need to rethink vertical integration prohibition if it wants to maintain a competitive legal industry.

Another big difference between the two states is that California does not have a statewide residency requirement for its licensees, although local jurisdictions may impose their own. The City of Oakland, for example, has enacted residency requirements in an effort to promote racial equity in the industry.

Washington State’s six month residency requirement for anyone who has an equity or profit interest in a marijuana license has proven very problematic for those seeking to attract capital and investors. This is another area that the Washington State Legislature would be wise to reconsider. Allowing at least some minority out of state ownership could allow struggling marijuana businesses to obtain much needed funding.

This is an exciting time for all of us involved in the legal marijuana industry. As California’s legalization efforts unfold, the rest of the country will be watching and learning.

For more information on the regulation of marijuana businesses in Washington State, please contact Heather Wolf.