My name is Rob Hendrix and I own and operate a state legal retail cannabis shop in Central Washington State. Washington State passed Initiative 502, the legalization of adult use cannabis, in November 2012. During the course of 2013, the powers that were to be at the state level worked on the rules, regulations, restrictions in order to create a workable regulatory environment for this new and controversial industry.
And while there were errors, miscalculations and many mistakes, the state and by extension, our primary regulatory body, the Liquor and Cannabis Board, or LCB, did a couple of things really right. I will not in this article attempt to review every RCW, WAC, rule and/or regulation, but I would like to discuss two things that occurred that I believe have created a much smoother path for us here in the Evergreen State.
The first was the rather modest application and license fees. Our application fee back in 2014 was $269 and our license fee was only $1100. Other states fees are huge by comparison; $60,000 application fees and upwards of $200,000 license fees in other states. In Washington, I believe the regulators discriminated IN FAVOR of small operations, Mom and Pop type shops, such as my business.
My wife and I, sole investors and owners of Cannabis Central of Ellensburg, were incredibly easy to vet. We had a home, a couple of cars, a pretty pathetic savings account and a 401K, of sorts. No overseas holdings, no stock portfolio except in our 401K, no other businesses.
Neither of us had a criminal record of any kind, we had never been arrested, not even any outstanding parking tickets. Incredibly easy, right? Now, did the state and the LCB feel it would be easier to check people like us out?
Of course. In order to be qualified for the retail “lottery” drawing, we had to be able to check the myriad of boxes and fulfill the seemingly endless parade of requests, demands, and Docusign processes at the beginning of each month, along with much more.
That brings me to the second thing the state did that I believe has made a huge difference in making Washington a success story in legal cannabis; the aforementioned “lottery”.
What is the “cannabis license lottery”?
The idea of a lottery to pick “winners”, that is to decide which of the qualified applicants actually are chosen to have the opportunity to obtain a cannabis license, on its face sounds really simple and maybe even dumb. The criticisms of using a lottery system to award cannabis licenses are legitimate:
- Does the state care if a person has ever run a business previously?
- Has this person or persons ever balanced a checkbook, processed a payroll, ever been in retail, ever been in management?
- Do they have the tools necessary to successfully run a business that is regulation-heavy and fraught with opportunities to be tripped up and quite possibly lose their state-issued license?
All real questions and real potential problems.
Now, lets take these two steps in the process and bring them together to bring my story “home” so to speak. Low application fees and license fees mean many of us can get into this. It doesn’t take a millionaire or a large corporation to get started given Washington’s reasonable costs of applications as well as license fees.
Millionaires and/or corporations are complex and have many layers and components. In addition, they have banks of lawyers who thrive on operating dangerously and are constantly on the lookout for loopholes in order to justify their fees. Will a state regulatory agency in charge of compliance have the resources to watch these organizations and keep them under control? I would say emphatically the answer is NO.
When states set up their fee schedule they are making calculated judgments about the applicants, especially when those fees are high. The bureaucrats feel the licensees are being given the very real opportunity to get rich, Therefore, they feel justified in getting their government tax and spend hands on some of that money upfront.
The fact is many even in our own LCB, our cannabis regulatory body, are personally against legalizing adult-use cannabis. It seems to reason other states’ cannabis agencies may feel the same way. State-level politicians understand nearly half of all constituents are not in favor of the legalization of cannabis and therefore need the ability to go back to the doubters in their respective districts that while he/she shares their concerns, by God we are going to tax the Hell out these businesses!
So even in my State of Washington, there is a prevailing feeling among lawmakers that the right move is to:
- Tell the public you are wary of the unintended consequences legalization brings
- Tax the industry heavily so the licensees will pay for their self-created problems.
The politicians need cover and this provides it. Of course, if they’re speaking to a pro-cannabis crowd, then of course these same politicians will praise the industry and the people in it and sing the virtues of legalization proudly as if they themselves created 502!
Why the cannabis license lottery works so well
Finally, the process of picking winners in Washington was by lottery, and I have outlined the negative aspects of such a simple process above. But there are desirable outcomes by using a lottery to determine who obtains the licenses and it has eliminated many problems.
There can be virtually no cheating, no one can hold their thumb on the scale of choosing. Lottery knows not what color, age, religious background, health history, business background, political leanings, associations, etc. It is a perfect way to pick licensees to avoid discrimination and pay to play schemes.
Low application and license fees in conjunction with a lottery system have helped to keep it all simple, easily controlled and perhaps most importantly, have been extremely helpful in adhering to the stated principles outlined in the August 2013 DOJ “Cole Memo”.
However, having huge fees invite large corporations and wealthy individuals who quite honestly are harder to “deal with” insofar as remaining absolutely sure things will be done according to the rule of cannabis law(s).
In my State of Washington, we have very reasonable fees across the board. However, the LCB makes up for this by having the highest excise tax rates in the US. So the licensees collect excise and sales tax at the point of sale.
The fees are a relatively minor source of income but the steadily increasing sales numbers which are growing much faster than originally forecasted are at the core of our success. Business has been slow to grow and thrive not weighted down by huge business fees the absence of which has created the cash flow you see now in our state.
The tax revenue flowing into the state’s coffers is quite large and is a relatively new revenue stream which is always attractive to all politicians. Successful businesses, solid financial returns for the state, and a spirit of cooperation and commitment to run our cannabis stores in a transparent and safe manner for our respective communities.
Good job Washington State. Other states, look to the Great Pacific Northwest for answers. I am already reading where there are big problems in several states’ applications, vetting, and license granting processes. These ugly issues and problems will become ever more apparent and will only get worse and more prevalent if you maintain these large, out of reach for most, application and license fees.