StateWays is the only magazine exclusively covering the control state system within the beverage alcohol industry, with annual updates from liquor control commissions and alcohol control boards and yearly fiscal reporting from control jurisdictions
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StateWays | www.stateways.com | May/June 2017 42 StateWays | www.stateways.com | May/June 2017 In Washington, the state's newly renamed Washington State Liquor and Cannabis Board has embraced its agricultural re- sponsibilities. Recently it moved $500,000 to the Washington Department of Agriculture to fund pesticide testing at cannabis growing operations. Radon tests will follow. How many black-market growers can claim that? BACKGROUND CHECKS Washington subjects all applicants for the state's cannabis busi- ness to FBI background checks. This includes investors and fi nanciers, who also receive a fi nancial background check, and must explain their investment plans. "This part of regulating is easier for us because we've al- ready been doing that for 80-plus years," says Rick Garza, director, Washington State Liquor and Cannabis Board. "We already know how to vet." Garza's team asks applicants whether they've ever had legal action taken against them. State employees who perform this work are the same group already vetting for Washington's al- cohol industry. Their experience and expertise translates nat- urally into cannabis. Garza credits robust background checks with keeping gangs and cartels from working their ways into the Washing- ton industry. He also points to these inquiries as a reason why Washington cannabis professionals have better luck with se- curing fi nancing. MONEY MATTERS Cannabis is illegal on the federal level. U.S. Attorney General Jeff Sessions is unlikely to reverse his negative opinions of pot, so national legalization probably remains a pipedream under President Trump. This complicates fi nances for cannabis busi- nesses and control boards. "If you're thinking about legalization, then the fi rst thing I would recommend is a long talk with your tax attorney," says Richard M. Blau, Chair of the Alcohol Beverage & Food Law Department for the fi rm GrayRobinson, during the NABCA symposium. "Federal tax code 280E forbids anyone taking tax deductions from the marijuana business. And that severely lim- its profi tability." It also keeps some businesses from accessing banking. Can- nabis can be a cash-only enterprise, says Sweet of Oregon. This is why many alcohol distributors and retailers have stayed out of the industry. Washington has had luck helping cannabis businesses obtain fi nancing from credit unions, Garza says, because the unions know how well Washington's control board vets applicants. "We share everything we fi nd with the bank," he adds. THE COLE MEMO What little direction states do have from the federal govern- ment regarding legal cannabis comes from the Cole Memo. This well-known, much-quoted memorandum was issued by former U.S. Deputy Attorney General James Cole in August of 2013. Cole instructed federal prosecutors in states that had legalized cannabis to focus less on pot prohibition, so long as their states had "implemented strong and effective regulatory and enforcement systems to control the cultivation, distribu- tion, sale and possession of marijuana." Cole further defi ned these systems as "effective measures to prevent diversion of marijuana outside the regulated system and to other states, prohibiting access to marijuana by minors, and replacing an illicit marijuana trade that funds criminal en- terprises with a tightly regulated market in which revenues are tracked and accounted for." In other words, states that safely and effectively control their cannabis markets should be of little concern to federal prosecu- tors. Many regulators take this as directive. "My guiding principal is that if I'm meeting the Cole Mem- orandum, then I'm doing a good job," Garza says. "That's the only thing we care about. If we're keeping it safe and we're keep- ing it out of the hands of kids and promoting responsible sales." VERTICAL INTEGRATION With legal cannabis being so new, control states are still fi gur- ing out the optimal way to set up tiered systems. When Washington and Colorado fi rst legalized, the former forbid vertical integration, while the latter actually mandated it. More specifi cally, Colorado required retailers to grow 70% of the product they sold.