Recently, the Washington State Liquor and Cannabis Board (the “LCB”) issued a new Notice of Rulemaking for the stated purpose of implementing 2017 legislative changes. This new proposal supplements the rules proposed in April of this year.
The prohibition on foreign investment remains in the new rule proposal. Until now, neither state legislation nor LCB rules explicitly required financiers to be US residents. It is unclear whether the concern driving this change is keeping a level playing field for marijuana businesses or avoiding federal scrutiny.
What is clear, is that many Canadian marijuana businesses would like to seek a foothold in Washington and many are doing so by technology licensing and branding agreements. If this new rule passes, Canadian and other foreign persons and entities would be limited to providing consulting, licensing and other ancillary services and could not provide any financial assistance to marijuana businesses.
Additionally, this would preclude family members who happen to reside out of the country from providing any financing to marijuana businesses. Given our close proximity to Canada, it is not unusual for owners of Washington State marijuana businesses to have family members in Canada, who would like to invest in the family business. Since marijuana business cannot obtain commercial loans, access to family funding can be crucial for business operations. Hopefully, the LCB will fully considered the ramifications of a complete prohibition on foreign investment before passing this new rule.
Speaking of licensing agreements, the new rules provide further detail on how licensing agreements must be approved. The new rules clarify that all licensing agreements and consulting contracts must be sent to the LCB before the parties sign any such agreement or contract. A new email address has been set up for review of these agreements: firstname.lastname@example.org.
Also emphasized in the proposed rules is that “[a]greements or contracts…cannot create an expectation of exclusivity or dictate the circumstances under which the marijuana business should operate.” In other words, the marijuana business cannot be locked into a contract whereby it is solely producing products for a single licensor. Nor can the licensor control the operations of the licensed marijuana business. Parties to any marijuana licensing or consulting contract should consult with legal counsel to ensure compliance with state rules and regulations.
The deadline for public comment on the proposed rules is October 3, 2018. Information on where to send your comments can be found here. Stay tuned to this blog for further rule updates, including new rules on processor to processor sales.
For more information on the regulation of marijuana businesses in Washington State, please contact Heather Wolf.