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By Daniel Shortt, Lawyer, Harris Bricken

Senate Bill 5318 is generating its way by means of the Washington legislature and appears destined for Governor Jay Inslee’s desk. As of April 16, the bill had cleared each the Washington Residence and Senate. If signed into law, which appears increasingly most likely, SB 5318 would drastically alter the way the Washington State Liquor and Cannabis Board (“LCB”) operates.

SB 5318 is titled, “An Act Relating to reforming the compliance and enforcement provisions for marijuana licensees.” Washington marijuana licensees, in this writer’s opinion, face the strictest, most punitive regulatory regime in any state that enables recreational marijuana. This is due to the guidelines around “true parties of interest” and “financiers.”

A accurate celebration of interest (“TPI”) refers to a legal owner of any shares or membership interest in a licensed small business. The LCB also considers any person who has the ideal to obtain any percentage of the gross or net income from a licensed small business a TPI. The accurate celebration of interest designation also refers to the spouses of any person who qualifies as a TPI.  The LCB at present mandates that a individual apply to grow to be a TPI, which implies that spouses, even for marriages following initial licensing, be disclosed and vetted by the WSLCB. TPI relationships can take place unintentionally which outcomes in a violation. The advisable penalty for the initial TPI violation is license cancellation and the LCB pushes for cancellation on practically all TPI instances.

Financiers are defined as any person who loans or gifts dollars or goods to a marijuana small business will have to also be vetted. In addition, the LCB will have to vet any funds that go towards the operation of a marijuana small business, regardless of the quantity. Failure to do so can outcome in license cancellation. For instance, if a TPI makes use of his or her individual dollars to cover payroll for a month when revenues are brief, the LCB will cancel the license for failure to vet these funds.

The LCB has taken a couple of half-measures to address this unworkable technique. A couple of months ago it floated the concept of beginning an amnesty program for specific TPI/Financier violations. That in no way occurred. The LCB also adopted an interim policy that lets TPI’s infuse their firms with money upon submitting an application to add funds. That policy is a step in the ideal path, but does not go practically far sufficient.

The outcome of this “enforcement first” policy has been a contentious partnership involving the LCB and state lawmakers, as documented by Lester Black for the Stranger. Without diving into the complicated partnership involving politicians, lobbyists, the LCB, and stakeholders, it appears protected to say that the LCB’s enforcement policy has reached a boiling point and brought on lawmakers to overhaul how that agency operates.

Now that we’ve laid the framework, let’s get into the facts of SB 5318:

Notice of Correction. If the LCB discovers a license violation through an inspection or stop by, the LCB determines that a licensee is out of compliance with laws or LCB regulations, the LCB could concern a “notice of correction” which would include things like a summary of what’s incorrect and how to repair it, a date when the licensee will have to comply, get in touch with data for technical help from the board, and the procedure for requesting extra time if necessary for excellent trigger. These notices are not viewed as formal enforcement action and not topic to appeal or public disclosure. The LCB would be essential to concern a “notice of correction” just before bringing a civil penalty and could not concern a civil penalty just before the time period in the notice expires. There are some exceptions exactly where the LCB would not be essential to concern the above notice:

  • The licensee has previously been topic to enforcement action for the similar or equivalent violation
  • Failure to comply with a earlier notice
  • Furnishing sales to a minor
  • Diversion of revenues to criminal enterprises, gangs, or cartels
  • Use of firearms in a licensed facility that poses a direct and substantial danger to public security or
  • The commission of non- marijuana crimes.

Restructuring Penalties. The LCB will have to rework its existing penalty structure. The LCB will nonetheless have the potential to include things like escalating penalties, but the cumulative impact of such penalties will have to be restricted to two years, which is a reduction from the existing penalty window of 3 years. Also, to cancel a license, the licensee will have to have at least 4 violations in a two year window. In turn, a single violation can’t outcome in license cancellation unless the LCB can prove by clear, convincing, and cogent evidence that the violation is brought on by intentional or grossly negligent action or inaction that requires 1 of the public-security scenarios listed in the earlier section (i.e., diversion of marijuana, sales to minors, and so on.). On top of that, no violations that occurred just before April 30, 2017 could be viewed as as grounds for denial, suspension, cancellation, or non-renewal of a license unless the LCB can prove that 1 of the public-security scenarios is implicated.

Compliance emphasis. The LCB will have to adopt guidelines to “perfect and expand current applications for compliance education” for licensees. These guidelines will have to include things like a voluntary compliance system which has suggestions on abating violations. The LCB will have to also build a technique exactly where licensees can request consultation on compliance problems. The LCB is not completely prohibited from making use of data from these consultation visits, whether or not in individual or performed remotely, but they can not treat the consultation as an investigation.

Employee violations. The LCB could not concern a violation if it outcomes from employee misconduct if the licensee documents that just before the violation was issued the licensee established a compliance system and performed training to protect against the violation and that licensee had not enabled or ignored equivalent violations in the previous.

Effect on Administrative Hearings. Administrative Law Judges will be authorized to think about mitigating and aggravating elements and can deviate from any penalties prescribed by LCB regulation. In addition, if a licensee enters into a settlement agreement with the LCB or the LCB’s representative, the LCB will have to give the terms of the settlement substantial weight and can only disapprove or modify the terms if the agreement is clearly erroneous.

SB 5138 appears really most likely to pass but it has not performed so but. Variations involving the Residence and Senate versions of the bill will have to be reconciled and Governor Inslee will have to nonetheless sign the bill. If passed, it will go into impact 90 days following the existing legislative session adjourns.

Re-published with the permission of Harris Bricken and The Canna Law WeblogW



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