9 Unknowns with I-502 Marijuana Stores – Lawyer’s Perspective

What will the marijuana stores in Washington State really be like? The stores as authorized by Initiative I-502 are scheduled to open in June of 2014. Here is a discussion of some of the unknowns.

1. Will people really pay $12 per gram?

The State Liquor Control Board has indicated that marijuana will be sold at $12 per gram by state licensed stores. Who will pay that? At first the marijuana stores will be a novelty, but then only yuppies and tourists would pay that much. The bulk of marijuana is not consumed by the infrequent casual user. Many heavy users smoke 3 grams per day. They won’t be willing to pay $1000 a month to continue their habit; they will just continue their home gardening or will buy it in bulk on the black market.image of washington marijuana store

2. Will the State prosecute home gardens?

For the State to maintain its monopoly, they will have to prosecute home marijuana gardens just as vigorously as they did pre-I-502. Except now, the State won’t be jailing you to prevent the scourge of drugs, they will prosecute you to protect their monopoly. Will the public accept this? Will jurors accept this when I-502 supposedly made marijuana “legal.”  Will local prosecutors jail backyard marijuana growers just to protect the state run cartel?  Wasn’t part of the motivation behind Initiative 502 to end the incarceration?

3. Will the State allow dispensaries to still exist?

It is not likely that the State will tolerate the marijuana dispensaries once the dispensaries become their main business competitors. Will the medical cannabis doctors cease to exist? Will the collective gardens likely cease to exist?  Will medical cannabis have any meaning when the I-502 stores open up?  Should patients be asked to spend the same for marijuana as recreational users? State legislator Chris Hurst has stated: “These dispensaries are absolutely illegal, criminal operations…What’s it going to take to shut all these down?”

4. Who will give the store’s legal advice?

Up until now the lawyers who have advised marijuana sellers or dispensaries have done so at their peril. The bar association frowns on lawyers assisting with the functioning of an illegal enterprise, and up until now the lawyers who have assisted are a few daring individuals who have assisted more on ideological grounds then business acumen. While it sounds exciting, the work of such a lawyer consisted mainly of reviewing business contracts, leases, assisting in payroll, personnel issues, taxes, copyrighting logos, and reading tea leaves to discern when the next federal bust might occur. Will the legal work now go to more mainstream corporate attorneys that have previously turned their nose up at such clients?

5. Will the stores sell to out-of-state users?

Will the I-502 stores attract tourists? How will Idaho feel about cars full of kids driving back from Pullman and Spokane with marijuana? Will Canadians come to Seattle to buy marijuana. Will the proximity of legal marijuana change the way the neighboring states handle marijuana criminal cases? Should the stores only sell to people with Washington drivers licenses or identification (similar to the way firearms are sold)?  Will Idaho resent Washington not supporting

6. How will the marijuana stores function on the financial side?

There has been much discussion in the news about the fact that banks will not receive proceeds of a marijuana store out of fear of violating federal banking laws. Will this change? Will the stores really need to function on a cash basis?  They can’t accept credit cards, or order items online? What has not been discussed is the effect of IRS section 280e. This code section means that persons in the “drug trade” cannot take business deductions for any business expenses. Think of it like this: If you run a retail store, you might sell $250,000 worth of goods in one year. However, you may just pay taxes on $50 because you have $200,000 worth of expenses from inventory, personnel, rent, supplies, and rent. IRS section 280e says that you cannot take any such deductions for selling marijuana.image of washington state marijuana

7. Will all stores open on the same date?

Many local jurisdictions are imposing moratoriums on marijuana stores in their jurisdiction.  These cities include Vancouver, Richland, Issaquah, Pasco, Kent, and Pullman, Washington.  Other cities, like Seattle, are asking for more stores. The end result is that the first stores to open their doors could be flooded with customers from neighboring jurisdictions that prohibit the sale. After novelty of legalized cannibis wears off, the second waive of entrepreneurs could face a different market place.

8. Who will apply for licenses?

On November 18th, 2013 the State of Washington will begin accepting license applications for marijuana stores. Who will apply for these licenses?  There are many backyard gardeners who have spent their lives hiding from the law and have dreamed about finally legally growing and selling marijuana.  However, I-502 and the implementing regulations of the Liquor Control Board make it clear that entrepreneurs with business experience and large financial back will have the advantage.  And a criminal record will hurt the chances of those applying for licenses.  Will these small-time growers turn to the black market for sales? People with the marijuana grow know-how are in long supply.  It is clear that these people will be working for corporations (if they are to be involved at all).

 9. Not enough marijuana?

The State of Washington plans on authorizing the sale of 40 metric tons of marijuana the first year.  The problem is no one knows if this is enough or too much marijuana. The black market marijuana trade was always a result of supply and demand.  Marijuana became scarce, there were “dry spells” in specific locales, prices arose accordingly, and the market corrected itself when new dealers moved in.  However, the new State regulated marijuana cartel (under I-502) will be operate through central planning rather than market forces.  Think Soviet Russia with its 3 hour lines for bread or potatoes.  When the State finally recognizes it is running short, the stores will have to order more marijuana from State licensed farms, and those crops could take a year to grow.  Just look at how much bureaucracy there is in implementing I-502.  The law pass almost a year ago, and the State hasn’t even printed the applications for the marijuana stores.

What do you think?  Will the stores run smoothly?  Will people be willing to pay $12 per grams.  Will the State be able to consistently meet the supply?  The truth is nobody knows just how the implementation will play out, but it will certainly be interesting to watch.

 

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Photo of Steve Graham Steve Graham is a criminal defense lawyer, and he splits his time between Spokane and Seattle, Washington. Visit his website by clicking: www.grahamdefense.com
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