Connect with us

Washington May Redefine What it Means to Own a Marijuana Business

On May 20, 2020, the Washington State Liquor and Cannabis Board (LCB) held a virtual listen and learn forum on Draft Conceptual Rules Regarding Marijuana Licensee True Party of Interest Rules. Cannabis Observer covered the forum and a summary is available here. The move to change the true party of interest (TPI) rules started in October […]

The post Washington May Redefine What it Means to Own a Marijuana Business appeared first on Harris Bricken.

Published

on

washington cannabis tpi

On May 20, 2020, the Washington State Liquor and Cannabis Board (LCB) held a virtual listen and learn forum on Draft Conceptual Rules Regarding Marijuana Licensee True Party of Interest Rules. Cannabis Observer covered the forum and a summary is available here.

The move to change the true party of interest (TPI) rules started in October 2018 when the LCB issued a rulemaking proposal considering changes to WAC 314-55-035, which is home to the current definition of a TPI. This is a big deal because the current TPI definition broadly defines what it means to own a marijuana business and has made it very challenging to own or invest in a Washington marijuana business. This post will examine the landscape in Washington under the current definition of a TPI and what we may see in the near future under these draft rules.

The Current Status of Washington True Parties of Interest

Under WAC 314-55-035, a TPI means any of the following individuals:

True party of interest
Persons to be qualified
Sole proprietorship
Sole proprietor and spouse.
General partnership
All partners and spouses.
Limited partnership, limited liability partnership, or limited liability limited partnership
All general partners and their spouses.
All limited partners and spouses.
Limited liability company
All members and their spouses.
All managers and their spouses.
Privately held corporation
All corporate officers (or persons with equivalent title) and their spouses.
All stockholders and their spouses.
Publicly held corporation
All corporate officers (or persons with equivalent title) and their spouses.
All stockholders and their spouses.
Multilevel ownership structures
All persons and entities that make up the ownership structure (and their spouses).
Any entity or person (inclusive of financiers) that are expecting a percentage of the profits in exchange for a monetary loan or expertise. Financial institutions are not considered true parties of interest.
Any entity or person who is in receipt of, or has the right to receive, a percentage of the gross or net profit from the licensed business during any full or partial calendar or fiscal year.
Any entity or person who exercises control over the licensed business in exchange for money or expertise.
For the purposes of this chapter:
“Gross profit” includes the entire gross receipts from all sales and services made in, upon, or from the licensed business.
“Net profit” means gross sales minus cost of goods sold.
Nonprofit corporations
All individuals and spouses, and entities having membership rights in accordance with the provisions of the articles of incorporation or the bylaws.

A TPI must be vetted and approved by the LCB in order to hold a license. All TPIs must qualify to hold a license, which includes a six-month durational residency requirement. As you can see from the table above, the legal owner of any shares or membership interest in a business is a TPI, along with their spouses.

Currently, there is no de minimis exception to any of this. If you own even .0001% of a marijuana business, you are a TPI and must go through a rigorous application process. If you are a TPI and get married, your new spouse becomes a TPI and therefore must be vetted. If he or she doesn’t qualify then you can no longer be a TPI. An individual or entity can also become a TPI based on business relationships. WAC 314-55-035 also states that anyone who has the right to receive any percentage of the gross or net profits from a licensed business a TPI.

It’s worth noting that in 2019, the Washington Legislature passed HB 1794 which allows marijuana licensees to pay royalty fees of up to 10% of gross sales of specific products as part of intellectual property or trademark licensing agreements. WAC 314-55-035 does not, at least in my opinion, currently make clear that this carve-out exists in the law.

The Draft TPI Rules 

Under the draft rules, a person with an ownership stake (e.g., a member in an LLC) or anyone who has “a right to receive revenue, gross profit, or net profit, or [exercises] control over a licensed business”  will still be a TPI. However, their spouses would not also be considered TPIs solely based on marriage which is a significant change from the current model. “Control” in this context means “the power to independently order, or direct the management, managers, or policies of a licensed business.”

In addition, the draft rules make some carve-outs to the definition of a TPI. These include exceptions for:

  • anyone receiving rent under lease or rental agreement, a person receiving a commission-based bonus in writing for the sale of products (capped at 10%)
  • a person receiving a commission for the sale of a business or real property
  • a consultant receiving a flat or hourly compensation under a written contract
  • a person “with an option to purchase the applied for or licensed business, so long as no money has been paid to the licensee under an option contract or agreement for the purchase or sale of the licensed business, or a business that is applying for a license”
  • any person with a contract for services with a licensed business (e.g., branding or staffing agreements) so long as the licensee retains control.

Many of these provisions codify industry norms. For example, option agreements are commonly used to transfer marijuana businesses where an option holder pays a licensee for a right to buy a license, pending LCB approval of the buyer as a TPI.

The draft rules also expand on how a licensee can notify the LCB when funds are invested in or loaned to a licensed business. The draft rules clarify that a licensee must disclose the source of all funds used by a marijuana business unless the business is reinvesting its own revenues. In addition, the proceeds of a revolving loan that has been vetted within the last three years do not need to be vetted unless the source of funds has changed or the amount of the loan has increased. The draft rules also codify an LCB policy that allows previously approved TPIs to invest or loan their own money to a licensed business, so long as they have notified the LCB. This means the money can be used, pending the LCB’s investigation.

Bottom line 

It’s important to remember that this process is ongoing. These rules are still in draft. The most significant change appears to be the removal of spouses as TPIs. However, the regrettable residency requirement remains in the draft rules and it will continue to restrict ownership of a licensed business to Washingtonians. The LCB claims that this is required by statute, but there is debate as to whether or not the LCB has the authority to remove or limit that requirement. (Take a look at RCW 69.50.331(1)(b)(ii) to judge for yourself). The draft rules also consider even the most remote ownership interest to create a TPI relationship. That still means that every shareholder of a corporation would need to be vetted, regardless of ownership percentage.

We’ll continue to monitor this process and report on new developments.

The post Washington May Redefine What it Means to Own a Marijuana Business appeared first on Harris Bricken.

Continue Reading

Growing

How to Identify Pests in Your Cannabis Grow

Experienced and novice cannabis growers alike understand that pests can ruin a crop, no matter how well watered, fed, or tended. One of the keys to making sure that your plants grow into healthy, robust, and consumable cannabis is to keep a close eye o…

Published

on

Experienced and novice cannabis growers alike understand that pests can ruin a crop, no matter how well watered, fed, or tended. One of the keys to making sure that your plants grow into healthy, robust, and consumable cannabis is to keep a close eye on any pests that might infiltrate your grow, then take the appropriate steps to eradicate them without ruining your garden. Not only will it help keep the plants alive, thriving plants have more energy to produce trichomes and terpenes, making for better bud

Let’s take a look at some common pests found on cannabis plants, how to identify them, and lastly, get rid of them for good. With just a little maintenance and vigilance, your cannabis garden can be pest-free.

Ad

Common Pests Found on Cannabis Plants

According to the Smithsonian Institution, there are likely more unclassified insects in the world than classified, and the running guess is somewhere between 2 million and 30 million. Thus, this is by no means a definitive list of bugs that feed on cannabis but should serve as a good starting point for most pest problems. 

Caterpillars

Before a caterpillar turns into a beautiful butterfly and flits away, it can be very hazardous to your cannabis plants. You know that book The Very Hungry Caterpillar? Turns out it’s a true story about how caterpillars eat everything in sight, including that tasty cannabis. Caterpillars can be very dangerous because they tend to go unnoticed, especially if they are a borer caterpillar, meaning they burrow into the plant and eat it from the inside out. But even caterpillars on the exterior will nosh away, potentially causing great damage to your plants. 

To figure out if caterpillars are ruining your plants, inspect the leaves weekly for holes from feeding, droppings on the leaves that look like tiny black specks, holes, and damage to the stems, and yellowing on upper leaves.

Natural enemies of caterpillars are wasps and praying mantises, and introducing those to the environment could make a difference. These options are typically easier for outdoor grows, but can also work indoors with some preparation. Other interventions include using a product like Bug Blaster spray or neem oil (which you can make at home).

Neem oil use has been controversial in some cannabis circles, as there is a belief among some that it may play a role in CHS (Cannabis Hyperemesis Syndrome), however, no definitive statements can be made without more research. The connection between neem oil and cannabis hyperemesis syndrome has yet to be fully explored or verified, but it’s still good to be aware and to be sure to closely follow usage directions.

Aphids

Even house plants have the occasional plague of aphids. Tiny and red, yellow, black, pale, green, or brown, these bugs can be easy to miss because they cling to the underside of leaves, reproduce quickly, and drain your plant of nutrients. Outdoor grows tend to fare a little better in the battle against aphids since natural predators are present, but indoor plants can be decimated quickly by these teensy pests. Not only do they siphon nutrients away from the plant, they leave a sweet substance called “honeydew” that attracts other insects and turns the leaves black and moldy

Aphids and their honeydew on a plant

The honeydew left behind from aphids leads to further damages to the plant by attracting even more pests. photo credit

Because that honeydew attracts other pests, if you begin to notice a lot of ants or ladybugs coming around your plants, it’s a pretty good sign that you’re well into an aphid problem. Aphids can be hard to shake, but wasps and ladybugs are natural predators. Nonetheless, you should visually inspect the underside of plant leaves at least once a week. If introducing predators doesn’t ameliorate the problem, there are a couple of natural solutions to get rid of cannabis pests to try, like garlic or tomato leaf water. 

Spider Mites

Spider mites are like the supervillains of cannabis pests: uber reproductive, zombie-like in their ability to come back from what you thought was death, capable of spinning webs while eating everything in sight then completely disappearing before turning up again – they’re nearly impossible to spot and even harder to eradicate. Spotting spider mites is difficult because they are minuscule, but doing a daily inspection of both sides of your plant leaves could help to prevent a massive infestation.

Signs of spider mites begins with speckles, then a browning or yellowing of leaves, and premature leaf death.

If any parts of your plant are covered in fine webbing, that’s a sure sign you’re in a bad spot. The best way to avoid mites is to stay vigilant with your leaf inspections. If you do notice signs of mites, try introducing a fan into the environment. Strong air currents make it difficult for mites to breed. Spider mites also prefer temperatures of 60-80 degrees, so experimenting with temperature might also slow an infestation down. Since mites are likely to come back, consider a spray like Azamax or Spinosad to get rid of them for good (again, be sure to follow use directions carefully).

Fungus Gnats

Fungus gnats are just as hungry as caterpillars, but their gourmet meal is from the stem and roots of your plants and not the leaves. Beginning at the topsoil level, both larvae and adults will munch their way down into the root system, badly impact plant drainage, and compromise the structural stability of your plants. However, they’re nearly impossible to spot because they are dark in color, as is soil.

Fungus Gnats

Although fungus gnats are small, the damage they leave behind is mighty. photo credit

Seeing swarms of gnats near the base of your plant is one sign you’ve got a fungus gnat problem. Other symptoms are stems that weaken and simply fall over, adult plants that start to droop, wilt, spot, or yellow, or plants that stop growing altogether. 

Fungus gnats love moist conditions, so keeping the top layer of soil dry is a smart preventative measure. Some other hacks to try include placing a cloth on top of the soil to prevent female gnats from laying eggs or laying a sticky pad near the plant’s base to stick larvae. You could also mix some peroxide and water and spray it around the area of gnat infestation. A common-sense tactic for an indoor grow is to put screens on the windows and the doors closed to keep gnats out. 

Why Pests and Bugs Are Attracted to Cannabis

Something to keep in mind about pests, in general, is that they love a monoculture or a space dedicated to growing only one crop. Researchers from the University of California Davis theorize that if an insect makes itself at home in that one crop, it has a large food supply, creating an all-you-can-eat kind of scenario for the pest, making it that much harder to eradicate. As you likely don’t want to introduce other plants into a cannabis garden (for a number of reasons), this issue will always exist to some degree when dealing with weed. 

This is why, as mentioned, another option is to introduce other beneficial insects. Not only do they prey on harmful pests, but they are also an excellent chemical-free pest control option. The bugs already want to be there, you’re just bringing them to the dinner table. 

Ad

The Wrap Up

Identifying pests should be a regular ritual, just like watering and delivering nutrients to your plants. When you keep them pest-free, all that hard growing work will hopefully pay off in healthy and efficacious plants. Once you’ve harvested, you can move on to other fun challenges like doing a proper cure for your cannabis harvest, and how to store your cannabis stash


How do you deal with pests in your cannabis grow? Share your techniques in the comments!

Photo Credit: ilovegrowingmarijuana (license)

Continue Reading

Connecticut

Governor of Connecticut Pushes For Legalizing Adult-Use Cannabis In Budget Address

Connecticut’s Governor Ned Lamont proposed legalizing recreational cannabis in his budget address this week.

Published

on

Connecticut’s Governor Ned Lamont proposed legalizing recreational cannabis in his budget address this week.

Continue Reading

News

South Dakota Governor Delays Implementation of Medical Marijuana Initiative

It seems that Governor Kristi Noem isn’t quite done derailing voter-approved cannabis initiatives.

Published

on

It seems that Governor Kristi Noem isn’t quite done derailing voter-approved cannabis initiatives.

Continue Reading

Trending