HOPE TRAVELS

In late May, the Washington State Liquor and Cannabis Board (WSLCB) very quietly adopted a proposed rule that will allow out-of-state individuals and entities to finance cannabis businesses within Washington State. Sort of.

In a previous column, I wrote how many cannabis industry stakeholders wrongly believed the WSLCB had already adopted new out-of-state financing rules and that those rules would allow out-of-staters to invest in and own Washington cannabis businesses. That was not the case when I wrote that previous piece, and it is not the case now either.

“These new rules do not revoke Washington States’ residency requirements for involvement in the cannabis industry.”

The WSLCB adopted rules that will allow out-of-staters to gift and lend money to Washington cannabis businesses and/or to their owners (including allowing out-of-staters to act as guarantors on commercial loans to cannabis businesses). The new rules remove Washington State’s six-month residency requirement for out-of-state gifting and lending yet they leave intact the requirement of criminal background checks, and the sources of any gifts and loans will still need to be vetted by the WSLCB before any licensed cannabis business can take any of the money. These new rules do not revoke Washington States’ residency requirements for involvement in the cannabis industry. If you are from out-of-state and you want an equity position in a Washington cannabis business, both you (and your spouse, if you have one) must be able to show the WSLCB that you have at least six months of Washington state residency.

Even though out-of-staters still cannot invest in or own Washington cannabis businesses, these new rules will likely increase the cash flowing into Washington’s cannabis economy. That means we likely will see an uptick of commercial lenders (most offering high interest rates because Washington does not have any usury prohibitions on commercial loans) put in front of the WSLCB for approval, and it is anyone’s guess as to whether the WSLCB further restrict how these loans (or even gifts) can be structured. It also means Washington State cannabis businesses are going to need to make tough, strategic business decisions about whether to take on sizable amounts of debt and that lenders will need to be thorough in conducting due diligence on their borrowers, especially when it comes to security, guarantees and collateral.