Oregon Governor Kate Brown recently signed HB4014, which removed the two year residency requirement for marijuana licensees. Washington residents as well as other out of state residents will be able to fully participate in Oregon’s legal marijuana market. The question is – will Washington follow suit?
Currently Washington rules require that both owners and financiers of marijuana businesses be Washington State residents. A rule change has been proposed by the Washington State Cannabis and Liquor Board (the “LCB”) that would allow out of state financiers. Out of state investors, however, would not be allowed to take an equity interest in a marijuana business in exchange for providing funding. Thus, as currently proposed the rule change would have limited effect in terms of allow out of state funding.
The LCB is somewhat hamstrung by state statute, which currently requires all members of a legal entity that own a marijuana business to qualify as license applicants. All marijuana license applicants must demonstrate that they have resided in Washington State for six months. Thus, a legislative change will likely be required in order for out of state lenders to take an equity interest in a marijuana business. A bill was introduced this year that would have allowed out of state residents to hold a minority interest in a marijuana business. This bill, however, did not make it out of committee during the regular legislative session.
There are concerns that allowing out of state investment in or ownership of marijuana businesses will lead to the big business takeover of the marijuana market in Washington. But, the state’s limit on the number of licenses that any person or entity may hold, the prohibition on vertical integration, and the overall caps on the number of licensees, already limits any single entity from dominating the marijuana market in Washington.
What is needed for marijuana businesses to succeed in Washington, is access to additional funding sources. Allowing out of state investment will increase access to needed capital. But, if we want to truly make out of state capital available to Washington marijuana businesses, we will need to allow out of state financiers to hold equity interests in marijuana businesses.
The LCB was originally scheduled to address the rule change allowing out of state financiers as well as a number of other proposed rules on March 9. Adoption of the new rules has been delayed while the LCB considers supplemental rule making. We should know later this spring whether Washington will follow Oregon’s lead in allowing out of state investment. Stay tuned to this blog for updates on this issue.
For more information on the regulation of marijuana businesses, please contact Heather Wolf.