Rule or Law? The Difference Matters For Your Marijuana Business

By Daniel Shortt on October 28, 2015 Posted in Legal Issues, States

This is for federal bills, but it nicely illustrates how complicated the process can be.

Laws are different than rules and understanding the difference between the two can be important to your marijuana business’s bottom-line. I will use Washington State as the example.

In Washington, laws are generally enacted through initiative or through the legislative process. Initiatives allow voters to pass laws directly by popular vote. Washington legalized recreational marijuana by popular vote — Initiative 502 in 2012. The legislative process requires a bill pass through both Washington’s Senate and House of Representatives and then garner the Governor’s signature before becoming law. Recently, SB 5052 and HB 2136 were passed through the legislative process and established new Washington State laws regarding medical cannabis.

As is the case with other states with “robust regulation,” Washington cannabis businesses are also subject to rules created by state agencies without the political protections provided by initiatives and the legislative process. State agencies, like the Washington State Liquor and Cannabis Board (LCB), are government entities given the power to regulate and govern a specific area or industry. These agencies are typically run by unelected officials. Agencies arguably create more efficient government because they a focus on one discreet area or industry, with expertise not usually available to legislatures and lawmakers.

A rule is an agency order, directive, or regulation that applies to the public generally. Rules are similar to laws because those who violate them may be subject to penalties and sanctions. Rules can and do change constantly, whereas laws tend to remain more static. The LCB’s rule-making process may begin with an individual’s petition to the LCB, but often the agency itself initiates the process against a cannabis business if it sees a need to do so.

To enact a rule, the LCB must publish notice of the rule-making in the Washington State Register. The LCB then holds a public hearing at which citizens are given an opportunity to comment on the proposed rule. Citizens can also submit written comments to the LCB about the proposed rule. The LCB must consider the public comments and then issue an order of adoption, which explains the new rule and the basis for its adoption.  Agencies can also institute emergency rules, which are not subject to the above requirements and become effective immediately. These emergency rules only last for up to 120 days and they must be in response to some immediate issue or danger. The Washington Department of Health recently issued emergency rules for medical marijuana, for instance.

Despite similarities to laws, LCB rules are not subject to the same type of political recourse as laws. This is significant because LCB regulations have huge impacts on the cannabis marketplace. For example, in Initiative 502, voters enacted residency requirements that restrict issuance of cannabis licenses only to those who can demonstrate having spent a certain amount of time in the state (see here and here). The Initiative never mentions “True Party of Interest.” In its rule making though, the LCB created the term, True Party of Interest, and defined it, and now applies the residency requirements to any party deemed to be a True Party of Interest. The definition for a “True Party of Interest” includes all investors and the spouses of any shareholders or principal. Though never contemplated by the voters, the “True Party of Interest” rule significantly restricts the marijuana marketplace by making it difficult for out-of-state investors to put their funds into Washington State cannabis businesses. Moreover, Washington voters who disagree with the “True Party of Interest” rule have little recourse beyond lobbying to get this rule changed.

One of the best ways for citizens to get involved with LCB rule making is to comment during the agency’s rule-making process. Currently the LCB and the Washington State Department of Health are holding hearings regarding medical marijuana regulations. If you care about the future of the marijuana industry in Washington State you should make your voice heard at one or more of these hearings.

CONTINUE READING…

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