website stat I 502 from a collective owners perspective
I 502 from a collective owners perspective
Admin Add Dispensaries (TOTAL POSTS:141) 7/27/2015 4:38:55 AM

 POSTS:21)10/20/2013 8:23:50 PM

 

Washington State I-502 Rules from a Medical Marijuana Dispensary Owners Perspective

 

My name is James, I originally started a medical marijuana business in Washington State in March of 2011.  This was during the time when the Washington State legislator was in the process of approving laws for medicinal marijuana dispensaries to operate.  Soon after applying for a business license from the State and the City of Tacoma, we were on our way to what we thought would be a legally recognized, tax paying business.  Two months after opening for business, Governor Gregoire vetoed the sections that would make dispensaries legal, after getting threats from the Federal Government that state employees could be prosecuted for violating federal laws.  Since that time, we have been fighting with the State, City and Federal Government to keep our doors open and service to our patients.  Believe me, it has not been easy.  I wanted to go over the new, suggested rules from the perspective of someone who has been in the medical marijuana business to show why I think the new proposed rules will hurt the recreational market, and eventually, patients if they are forced to buy through this system.

 

 

 

1000 ft. Rule

First, we will start with the 1000 ft. rule issue.  This is one of the most restrictive parts of the new law and seems to be designed to limit the distribution of product.  The federal government has issued warnings in the past to medical marijuana dispensaries, that if they were within 1000 ft of a school or playground they would be forced to closed; however the Feds never used parks or public transit systems to threaten a dispensary.  For larger cities there will be huge areas where dispensaries cannot be located.  If the intention is to make as much tax revenue as possible, this is a bad way to do it.  Some consumers will have to travel great distances to get to a store.  Also, persons who do not have a car will not be able to purchase as often as they want to. Because marijuana is still illegal on the federal level, less landlords are willing to rent to these types of businesses, making suitable locations even harder to find for prospective entrepreneurs.

 

Limiting the number of locations to 336 greatly reduces the amount of revenue the state will receive, the exact opposite intention of the initiative.  At present, it is estimated that Seattle alone has 400 dispensaries.   The three-hundred and thirty-six dispensaries are hardly enough to meet the demand of the current medical marijuana market - let alone a recreational one to boot.

 

 

 

Qualifications of Applicants

Here the only problem I see is requiring that both the husband and the spouse qualify equally for a license, it is not fair to punish a citizen for something another citizen did because of their marital status.  This seems to be a violation of one’s constitutional right of equal protection and due process, but I am not a lawyer. I understand the states position that they want to keep criminal elements out of the business but this should be done on a case-by-case basis and not a blanket restriction to acquiring a license.  The three month resident requirement is also a joke since any out-of-state entity with sufficient capital would have had time to establish residency in a three month time frame.  If the intention was to give Washington State residents a head start in the laws that they voted for - this does nothing.

 

 

 

No Consumption of Marijuana Products on Licensed Premises

This is a terrible rule for obvious reasons, but let me add a few of my own.  How are managers and employees supposed to test products that a vendor has to sell?  Secondly, out-of-town tourist will have no legal place to consume their product and since they cannot take it out of state with them, according to law, it completely defeats the purpose.  Some places are allowing patients to vaporize the product which is semi-legal, but unless Washington State allows clubs are private bars to smoke cannabis this will defiantly hurt business.

 

 

 

No Vertical Integration

I-502 does not allow a retail location to also have a producer or a grower license.  This is one of the biggest red flags I see with this law.  The main cost of running a dispensary is the cost of the product.  If you are not able to produce your own goods, you will be at the mercy of supply and demand of the growers.  I predict that when the stores open they will be wiped out of products in the first 30 days,  leaving retail store owners with huge overhead cost and empty shelves.  Since I have been operating a collective, every summer there is a drought of product because all of the outdoor grown marijuana runs out from last year’s crop.  Remember you can only grow one crop per year outdoors unless you use some type of light deprivation in a greenhouse.  Because production has to start from scratch, the demand will definitely out-last the supply.  Also, since you cannot grow your own products there is no way to distinguish your store from others since every dispensary will access to the same products.  But again, I cannot stress how prohibitive this rule is to a successful business model. How is a business going to compete against black market prices when they have to pay three levels of taxes and not have control of the product line?

 

 

 

Size of Production Licenses

Three different tiers of production licenses will be issued: Tier (1) - less than 2000 feet; Tier (2) - 2,000 to 10,000 square feet; and Tier (3) - 10,000 to 30,000 square feet.  Because all facilities must be accessible by law enforcement, the WSLCB will not let growers produce in a home dwelling.  This will reject many of the current growers to the black market for various reasons, one being they will not be able to obtain a lease for a production space.  Also, if too many licenses are issued, the board can scale back the square footage so they do not go over the 2 million square feet limit. Even if someone acquires three 30,000 production licenses, they could later be told to scale back their operation.

 

 

 

Production to Processor Problems

Growers who only have a production license will not be able to package the marijuana for final sale to the consumer.  How will the growers get their branding and labeling done?  They will have to negotiate with the processor and there seems to be no rules in place for this.  For example, if the processor receives 5 pounds from Mary Jane’s Gardens how will the five pounds be divided up for sale - 1 ounce or 1 gram?  How will the processor now negotiate with the retailer when they have no knowledge of the product being sold?  Currently, the way dispensaries work, is a grower will bring extra cannabis to a dispensary.  The manager or owner will look at the product and negotiate a sale.  Since the grower is now separated from this process, the processor will have all the power of the sale.  This could cause processors to show favoritism to certain growers with absolutely no oversight by the WSLCB.  Imagine a scenario where a processor has his own 30,000 square foot garden but he also does processing for smaller Tier (1) and Tier (2) growers.  Whose product do you think he is going to push to the retailer?

 

 

 

Retailer License Problems

The most obvious issue here is the number of retail stores that will be allowed.  Three-hundred and thirty-six stores will hardly be enough to supply the entire state with enough physical locations to keep up with demand.  This will cause stores that do open to be swamped and unable to efficiently provide service to their clients.  The lottery of licenses also makes it unfair for those who do not win.  It will take a considerable amount of money to set up a lease, install a security system and all the other requirements, only to be at the mercy of a lottery. The retail locations will be at the mercy of the producer’s ability to keep their shelves stocked.  If the current medical marijuana shops that are only located in 6 to 7 cities cannot supply current medical demand, then there is no way this system will be able to supply a state wide distribution plan.

 

 

 

Security Camera Requirements

According to adopted rules each facility needs to have a security system that records all doors ingress and out-gress, all controlled rooms, and all point of sales systems.  The resolutions must be at the minimum 640 x 470 pixels and be recorded at a minimum of 45 days.  If you go to the following link this will let you calculate how much hard drive space you will need.  Since it does not go up to 45 days, I did a calculation intended for 30 days for an 8 camera system.  Now remember that 95 percent of the facilities will need at the minimum 16 cameras.  By using only 8 cameras at 640 x 470 pixels, you will need a hard drive of 11 terabytes.  Subsequently 45 days would be around 16 terabytes of hard disk space to meet the security camera requirements of the state.  Just browsing amazon I was able to find a 16-channel DVR system with 8 terabytes that cost $19,000 and that’s without the cameras!  And remember that is only half the storage amount that you will need to record 45 days.  With installation and cameras, expect to pay close to $30,000 or more for your security system.

No Home Businesses allowed.

The WSLC wrote into the rules that private homes cannot be used because it does not allow police to enter the facility at will. This seems bogus since an option could be given to homeowners to accept access to their property as a condition of receiving the license. And it makes no sense because businesses have many the same constitutional protections for search and seizure as a home. This seems to be designed to eliminate many of the current medical growers out of the picture and hand the industry over to the wealthy.

 

 

 

Traceability

The seed-to-sale traceability system could be the one thing that keeps recreational marijuana from being implemented.  Before being a dispensary owner, I worked at Microsoft for 5 years as a Database Engineer.  I have worked on some of the largest databases in the world and understand in great detail the complexities that come with not only running them but implementing them.  Since I have been a medical grower for 12 years and a dispensary owner for 2 years, I understand the huge technical challenge that BIOTECHTHC will have with implanting a seed-to-sale tracking system.  I-502 states that Marijuana seedlings, clones, plants, lots of usable marijuana or trim, leaves and other plant matter, batches of extracts and marijuana-infused products, must be traceable from production through processing, and finally, into the retail environment.  Including, being able to identify which lot was used as base material to create each batch of extracts or infused products.  The following list of events must be tracked:

 

(a)  Key notification of “events,” such as when a plant enters the system, is moved from the seedling or clone area to the vegetation production area;

 

(b)  When plants are harvested and destroyed;

 

(c)  When a lot or batch of marijuana –infused products are transported;

 

(d)  When usable marijuana or marijuana-infused product is to be destroyed;

 

(e)  Any theft of marijuana seedlings, clones, plants, trim or other plant material, extract, infused product, or other item containing marijuana.

 

…and many other events that a normal grower would not have to track, including number of times fertilized.  Having a web-based application that tracks thousands of producers, growers and retailers will be no easy task.  Coming from a grower’s point of view, this will only add more cost.  First, each licensee will have to pay the cost of installing the system which is estimated to be two to three thousand dollars and then most likely a $3 to $400 per month fee to use the system.  Second, employees and managers will have to be trained to use the system.  Also, at what point does the weight of the finished plant go into the system - when the plant is first cut down or after the plant has dried?  Every grower knows that the cannabis plant loses 75 percent of its weight during the drying process.  Some growers cut their plants after 4 or 5 days of drying while others let their plants dry for 7 to 10 days and then cure the buds for up to 30 days.  At any point in time the plant will have different weights as it dries. 

Dispensary owners will not take bud that is too wet or too dry so how does the computer system account for this?  Last, if the bud is sold to the processor and it weighs 1 pound, it could lose up to 3 more ounces of weight during the packaging process depending on how the grower dried the flowers.

Anyone who thinks the state of Washington can implement a seed to sale system in under three years should have a read here.

 

Denver hired a company out of Florida (BIOTECHTHC the company that won the Washington State contract for the seed-to-sale system is from Florida, not saying it’s the same company…), after 9 months they gave up trying to implement the system.

 

 

 

Samples and Negotiating a Sale

Initiative-502 rules state that producers may sample one gram of usable marijuana per-strain, per-month for quality sampling.  Sampling for quality may not take place at licensed premises.  Only the producer or employees of the licensee may sample the usable marijuana for quality.  The producer must record the amount of each sample and the employee(s) conducting the sampling in the traceability system.

The most ridiculous part of this rule is that the retailer cannot sample the product on the licensee’s location.  So a retailer will have to send an employee home, try the product, and then come back the location.  Since the producers have to travel to each retail and negotiate a sale this will put undue burden on businesses.  Imagine a situation where you have a retail location in Spokane and a producer in Seattle.  The producer travels to Spokane gives a sample to the retailer.  The processor has to wait for sampling before negotiating can begin.  Each retailer will have to sample many products in the case of keeping inventory on the shelves.

 

 

 

Production of Marijuana Fertilizers, Pesticides and Potting Soil

I-502 only allows materials listed or registered by the Washington state department of agriculture (WSDA) for production of marijuana.  The big problem here is that marijuana requires very selective fertilizers to get the maximum growth.  The most popular fertilizers that indoor growers use are Advance Nutrients, Canna, and general hydroponics.  Most professional growers use Advance Nutrients, but that isn’t listed in the Washington state database which you can find here.

 

 

 

Transportation of Marijuana

Whenever marijuana is transported, it needs to be logged into the traceability system.  To make matters worse, only employees or the licensee may transport the marijuana.  This means that producers and processors need to have a dedicated delivery driver which adds to the overall cost.  It also will make logistics a nightmare.  If a retail store runs out of products not only does he have to add the 24 mandatory storage requirement to his expected delivery date but they will also have to deal with the extra time required to test the product as mentioned earlier.

 

 

 

Record keeping

The record keeping rules are draconian and will add time and cost to the production of marijuana.  Requiring the recordkeeping of fertilizers and pesticides on a daily basis will be cumbersome and difficult, especially for larger operations that grow multiple strains.  It will also make it more difficult for the traceability software to function by having to track so many variables in real time.

 

 

 

Marijuana Testing Requirements

I-502 requires that all marijuana be tested for moister content, potency analyst, foreign matter inspection, pesticide and other chemical residue and metal screenings, and residual solvents levels. The huge problem with this is that there is no current standard to test marijuana.  Many dispensary owners stopped having their marijuana tested because they would send the same sample to four different labs and get four different results, sometimes with differences of up to 25 percent.  How will Washington State calibrate multiple labs to give the same results when it cannot be currently accomplished?  Moreover, any experienced grower will tell you that different parts of any single marijuana plant can have different chemical properties.  For example, the top of the plant will have higher THC values than the lower part of the plant.  Also the chemical compositions, and especially the CBD level, changes DAILY as the plant matures and cures. One bud of the plant can have mold while another part of the plant will not.  What is to stop a grower from sending in a non-molded bud for testing but then ships molded bud to the processor?  Since it would be impossible due to financial cost to test all the marijuana, you will never have a true tested marijuana batch.  Because it requires that the batch of marijuana be destroyed if it does not pass the testing, standard growers are putting themselves at risk from lab mistakes and errors in testing.  Recently Canna Normal had a ring test of different marijuana testing labs.  For those who think marijuana can be tested reliably should have a read here.

 

 

Packaging and Labeling Requirements

The big question here is how will the processors package and sell the product to the retailer?  If I am a retailer and I buy a pound of a certain strain, does it come packaged in ounces, grams, or eights?  Will the retailer be able to separately weight the product for each customer or will the weights be pre-packaged? This is really not clear by the rules but if it requires it to be pre-packaged this will have a negative effect for the consumer.

 

Federal Issues

The Justice department issued a memorandum telling the states of Washington and Colorado that they would not sue to stop the legalization process. Enforcement would be based on the ability of those states to keep cannabis away from children, keep cannabis within their perspective borders and keep criminal elements out of the business among other things. Cannabis is still a schedule 1 narcotic and those participating in the business are still committing federal crimes. Those who think they can rely on the DOJ document should look what happen to medical marijuana entrepreneurs in Californian who received similar promises through the now infamous Cole Memo which stated that the Obama administration would not go after medical marijuana operators who were following state law.

There were many people who paid taxes got state licenses, had CPA’s lawyers who all gave them the green light to operate, only to see themselves sitting in federal prison. You can read about dispensary owner Aaron Sandusky’s case here.  And read about multiple dispensaries owners who followed all the rules but still ended up in Federal prison here: Moreover, potential land lords have to indicate that they know that marijuana will be grown on their facilities which make it harder to find lease able space. Everything might be fine and dandy now with the current administration but what happens if a right wing republican is elected in the next cycle and decides to prosecute all those involved with committing a federal crime? Now they have a complete paper trail for an open and shut case. Since cannabis is still illegal on the federal level you will not be allowed to use State laws as a defense.

 

Banking Issues

As of the time of this writing there are no banks that do business with any of medical or recreational marijuana markets due to fears of being prosecuted for money laundering. I will be extremely difficult for this new industry to survive using only cash. Also it leaves owners and employees at risk to robberies. Either the state needs to create its own bank or congress needs to pass new laws before the industry starts:

 

Firearms

Currently due to federal law it is illegal to possess firearms around cannabis and carries special penalties If you are arrested with a firearm around the plant expect to do mandatory federal prison time. Until marijuana is rescheduled or a congressional vote potential business owners will be vulnerable to prison time and armed robbery without this protection afforded to other industries. Recently a Puyallup Homeowner shot 2 men who were trying to rob him of his marijuana crop that consisted of 200 plants. The local prosecutors decided to forward the case to the Feds who charged the man with federal gun and drug violations. He now has to do a mandatory sentence of 5 years he also had to forfeit almost 600 thousand dollars in proceeds from the sale of his house. Since I-502 locations will be public and there will be million dollar crops going how will business owners be assured that they will not be prosecuted for using a firearm to protect their investments? And also how will they be assured that their million dollar investment will not be confiscated by the federal government?

 

Local Approval of Cities of applicants.
 
What is to stop local cities from not objecting to their friends applicants and objecting to all other applicants holding up their application pass the 30 day window?
Imagine towns all across Washington letting powerful business interest get licensees and filing objections on smaller growers and businesses. This is especially critical in the retail license applications where the number of businesses are severely limited.

Taxes 

Beyond the insane tax structure that is placed on the industry. Potential business owners have to worry about IRS tax rule 280e. This rule makes it impossible for business owner`s to deduct business expenses. This means retailers can not deduct the cost they pay for the cannabis products. Also we have heard rumors that the Washington State Department of Revenue will ALSO NOT LET BUSINESSES DEDUCT EXPENSES.  This means that not only will you get screwed on the front end you will get screwed on the back end as well. Harborside Collective one of California`s  largest medical marijuana dispensaries is currently fighting the IRS on a similar lawsuit. See: http://www.forbes.com/sites/janetnovack/2012/07/13/owner-of-nations-first-marijuana-pharmacy-now-broke-and-fighting-irs/
and
http://www.sfgate.com/bayarea/article/Oakland-pot-dispensary-gets-2-5-million-IRS-bill-2328565.php


Lottery for retail license.

This rule itself is contradictory to free market economics. The liquor control board should not put a limit on who can receive a retail license but instead let the laws of supply and demand determine which retail stores will survive. Furthermore it is unclear as to which stages in the application process will the lottery occur. Do you have to find your location, get your insurance, install your security systems, and install your seed to sell tracking system, train your employees before the lottery starts? Imagine 50 different businesses having to spend up to one hundred thousand dollars each to apply for a license that they statistically will not get.  In the city of Tacoma there are around 40 medical marijuana businesses. But only 8 I-502 retail licenses will be issued. 32 of these businesses will be forced to close. The others who apply and aren’t lucky enough to win the lottery will lose all their startup money in the application process.


 

 

 

In Conclusion

No other industry in the world has the type of restrictions that has been imposed on this new market which leads me to conclude that somebody does not want to see this industry succeed. There are no stable testing procedures for marijuana. There is no stable seed-to-sale tracking system that exists, and the way marijuana works this would be a tremendous IT challenge requiring at least two to three years to develop and test.  If this system is implemented, I predict prices will be $20 to $30 a gram which is 100 to 200 percent higher than current market prices. Those who think store will be open my Summer of 2014 will be extremely disappointed. Since the rules have not been finalized yet the software for the seed to sale cannot even be written yet. After they write the code then they have to test it. This process will take at least 2 years. And remember by law nothing can be grown without entering it into the sale to seed system that does not exist yet. Also we now know that the state wants to completely eliminate medical marijuana and force patients to go to recreational stores. How are you going to force patients to go to something that does not exist yet and has yet to be proven economically viable? Even the consultant that was hired by Washington State said the system would fail because of the high taxes. I believe the system will fail not just because of the high taxes but because the rules that are written are not viable in the real world of economics and production. We now know that marijuana really is medicine; even the world renown neurosurgeon Dr. Sanya Gupta admitted that marijuana is not only medical but sometimes it is the only drug that can cure certain symptoms. He even went further to apologize for being part of the government deception campaign. Those who want to eliminate medical marijuana because they consider them competition should remember those patients who need it live and cannot afford the astronomical tax additions. One day cannabis could save your life or that of your loved ones. Also those brave Washingtonians who forged ahead and risked their freedom to help and serviced these patients should not be ostracized by the media and politicians and fraudulent and scammer`s but as pioneers and visionaries in this brand new industry.

CBD Vape Pens By Medically Minded 

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