Who really owns all this weed?
Who really owns all this weed? Getty Images

If you want to own a legal pot farm or retail store in Washington you must tell the state every person that has invested money or shares revenue in your business. If you hide an investor, even accidentally, the state’s rules punish you by canceling your license.

In theory, the strict disclosure requirements and harsh penalties will prevent criminal organizations from profiting from legal weed sales in the state.

But Washington's Liquor and Cannabis Board (LCB), which regulates cannabis in the state, has had trouble enforcing the strict penalties, and now they’re considering a month-long amnesty period for concealed ownership violations. The amnesty program left one LCB member worrying in a public meeting last month that "we're going to have to either accept that we're going to get some people with fraudulent intent in there or just not do it."

The LCB’s difficulty in enforcing these concealed ownership violations has been documented in the past. By 2017, the state had issued 36 violations of hidden ownership but only canceled three licenses, according to reporting by Seattle Times’ Bob Young.

The LCB’s reluctance to cancel licenses during every hidden ownership case is because some of the violations are relatively minor accounting or disclosure mistakes, according to Daniel Shortt, an attorney with Harris Bricken that represents pot business owners. Shortt said the state’s harsh penalty for these violations, called “true party of interest violations” by the state, punishes business owners that try to correct mistakes.

“I think that there are certainly bad actors out there but a lot of these true party of interest violations come up when licensees are trying to be transparent,” Shortt said.

The state’s Liquor and Cannabis Board wants to change that situation, so they’re now considering opening a month-long amnesty period, where business owners can come clean on their previous misdeeds without having their license canceled, according to a draft LCB letter obtained by The Stranger.

Brian Smith, a spokesperson for the LCB, said the program is still being discussed by the board.

“As proposed, the idea did not get beyond discussion,” Smith said in an e-mail. “Staff said they would brainstorm further and come back to the board at a later date.”

According to documents published to an online message board, the LCB is already writing up rules for the amnesty program. Gregory Foster, a member of the local trade group The Cannabis Alliance, published a draft letter and a flowchart that describe the proposed amnesty program on a Google group used by the legal cannabis industry.

The draft letter states that the LCB is offering a “one-time opportunity, for licensees who have owners and financiers who have not been approved, to come into compliance.” To qualify, the hidden owners must meet all of the existing criteria for ownership in a legal weed business, including living in Washington state and not having a disqualifying criminal history. If the pot business owners meet those requirements and follow the program’s tight deadline, the LCB “will not investigate them for hidden ownership regarding these owners or financiers,” according to the letter.

The letter states the LCB will accept applicants for the amnesty program between August 1 and August 31 of this year and will require a $75 license fee. The LCB already created an e-mail address for the project (trueparty@lcb.wa.gov).

The LCB Board discussed the proposal at their June 27 board meeting. I wasn’t able to attend the meeting in Olympia and the LCB hasn’t published any audio from the meeting on their website, but Foster’s watchdog reporting captured some interesting exchanges at the LCB’s headquarters.

Justin Nordham, an enforcement officer with the LCB, introduced the proposal, according to Foster’s audio and transcript of the meeting. Nordham said attorneys representing cannabis businesses had been calling trying to find a way to resolve violations without having their licenses canceled.

“I was getting some calls from attorneys saying, “I don't want to tell you who it is, but I've got clients who want to get their licenses right, but they're too scared to, to make an application to correct this, because they think they're just going to go through a cancelation process,” Nordham said, according to Foster’s documentation.

Nordham said he estimated that not many licensees would take advantage of the amnesty period.

“I don't think this would be a widespread interest, but it would get a small group of people probably an opportunity to get into compliance without penalty and say, 'I want to do the right thing, I want to make it right, but right now I'm not because I'm too scared that, you know, it's gonna jeopardize everything that I have,'” Nordham said, according to Foster’s transcript.

Russ Hauge, one of the LCB’s board members, said the program would inevitably give amnesty to some owners that intentionally misled the LCB.

“We're going to miss some people who have good intent," Hauge said, according to Foster’s transcript, "and we're going to snag some people who have bad intent.”

Hauge added that the business owners who followed the law from the outset would be upset about the policy.

“One person's innocent desperation move to take money that might be a little questionable, is going to be, in the eyes of the person on the outside who suffers a business disadvantage or doesn't have that opportunity, fraudulent intent at the outset,” Hauge said, according to Foster’s transcript.

Hauge said the LCB should distract the public from the policy because of its unpopularity.

“I'm not arguing against it, this is gonna, well if we had anything else that we wanted to distract somebody from, this would be the thing to do, because this is going to get a lot of attention,” Hauge said.

Shortt said modifying the punishment for concealed ownership violations would provide an incentive for honest businesses to resolve any issues, and allow the LCB to go after companies that are actively hiding their ownership.

“The rule itself and the way it’s been enforced really punishes the transparent, the businesses that have made mistakes and violated the rules but there’s no ill intent,” Shortt said. “Then you have people who have actively dodging the LCB, but if you’re actively dodging the LCB and not acting in a transparent way I think it’s less likely that the LCB is going to catch you on this. Which is not a sound policy in my eyes and that’s one of the reasons why they are considering this amnesty.”