Colorado v. Washington

Colorado state flag vs Washington state flag
Which state will serve as a model for other markets when it comes to crafting a recreational cannabis regime: Colorado or Washington?

Although Washington and Colorado both legalized recreational marijuana in November of 2013, the two states have taken very different paths since then.

Colorado appears to be the obvious winner from a business perspective with its recreational marijuana market a national sensation. The industry is already generating tens of millions of dollars in sales and entrepreneurs are out-bragging each other about huge profits.

Washington State’s program, on the other hand, is has been stuck in controversy from the get-to, and it continues to experience setbacks. The latest hurdle developed when the agency overseeing the program decided to reduce the number of cultivation licenses for which a business can apply. It that were not bad enough, the agency also reduced the amount that each operation can grow. These are major changes at a late stage in the rule-making process. They will create huge problems for those who have already invested time and money in the marijuana business based on earlier assumptions.

“People are apoplectic,” Washington attorney Ryan Agnew said. “Many people had already formed partnerships and made the capital outlays necessary to grow at the higher production cap.”

Equally ominously, sales tax estimates released this week by another state agency were apparently based on projections that significant recreational marijuana sales might not begin until June 2015 – a full year later than originally anticipated.

This is claimed to be a worst-case scenario but that it is even being as articulated as a possibility speaks for reasons for serious concern.
Washington not only put strict limits on cultivation as well as on the number of retail stores, the original demand estimates used to set those rules now appear far too low. The state’s ban on home growing in the recreational market will likely create serious supply-chain issues, giving renewed strength to the black market.

Perhaps even more significantly, there are plans being mentioned that would abandon the medical marijuana marketplace altogether, rather than create two separate markets. That is such a bad idea it is hard to take it seriously.

“The MMJ community was cut out of the drafting of (the law) and thus missed an opportunity to share their knowledge of the market and work in rules that might benefit existing MMJ businesses,” attorney Agnew said. He mentioned issues with location restrictions, prohibitive tax levels and newly-determined startup costs.

Colorado, by comparison, was careful to create a clear Separation between the medical and recreational industries. The state also gave current medical marijuana business stakeholders a real role in the rule-making process, which eased the transition.

Significantly, Colorado left the industry in the hands of the free market; there are an unlimited number of retail licenses, stores and cultivation sites. And Colorado residents can cultivate their own legally.

The fact that Colorado had a clear and strong regulatory framework already covering medical marijuana business made all the difference in the transition to recreational sales.
Washington still has not developed rules for dispensaries; hence, the medical marijuana industry as it exists is generally illegal.

Who knows? Washington’s model might emerge as the operative national business model after it surmounts its initial challenges, while problems could eventually develop in Colorado if unrestrained growth invites scrutiny from Federal prosecutors.

But the early results show some hiccups in Washington’s initial approach where businesses are concerned, and its move to eliminate – rather than embrace and restructure – the medical marijuana industry is a crucial mistake in the eyes of many.

For these reasons, other states considering recreational marijuana legalization will want to look at Colorado.

About Douglas Slain

Doug received a JD from Stanford Law School, a MA from the University of Chicago, and a BA from DePauw University (Phi Beta Kappa). After practicing real estate and finance law at then Pillsbury, Madison & Sutro, he founded four national monthly law reporting titles now owned by Thomson-Reuters. He served two consecutive terms as chairman of the American Bar Association’s General Practice section’s Professional Responsibility Committee. Slain was an ABA-appointed rule of law consultant to the Ministry of Economy for the Republic of Latvia as its secured transactions adviser. He taught briefly at Stanford Law School as an adjunct clinical law professor. Slain has been the managing partner of Private Placement Advisors since August 2009. In January 2013 he founded Outliers Network.

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