Pros and Cons Washington cannabis regulators discuss hidden ownership “amnesty” program

During an executive management team meeting in June, the Washington State Liquor and Cannabis Board (LCB) acknowledged that its current treatment of “true party of interest” rule violations is problematic by discussing the potential adoption of a hidden ownership amnesty program. The gist of the proposal is that any existing businesses that mistakenly created a true party of interest relationship (i.e. by granting ownership in a licensed business, receiving funds or allowing the exercise of control by a non-vetted individual) would have a limited time to come forward and declare any owners or other true parties of interest in those businesses that had not been disclosed to and vetted by cannabis regulators in the past. The licensee would then be able to have that undisclosed party vetted, and would be subject only to a potential penalty, but not to license cancellation.

The details of such a program are far from final, and the cannabis regulators that make up the LCB’s executive team will continue to discuss this issue over the coming months. But even if the LCB were to adopt regulations to establish an amnesty program quickly (which is highly unlikely given the time it typically takes to adopt and implement new rules), the executive team made clear that this change would not affect anyone currently undergoing a formal investigation or rules violation hearing.

Although there is a problem with the LCB’s current system as it applies to true party of interest disclosure and vetting, it’s unclear what this amnesty program will truly do to fix the root of the problem. The problem is ultimately that the current timing for getting financing approved by the LCB just doesn’t work. Under current regulations, licensees must disclose and allow the LCB to vet all money contributed to the business prior to the licensee accepting those funds. The approval process for capital contributions can take months, even where the contributors have already been approved by cannabis regulators for prior contributions. Unfortunately, however, businesses in need of short-term capital infusions, which can sometimes be as critical as making payroll, can rarely afford to wait months for regulatory approval. Licensees are sometimes forced to accept capital in violation of the rules in order to keep their businesses afloat.

There are many solutions to this problem that the LCB could adopt without implementing an amnesty program as a sort of temporary “bandage.” The LCB could allow for after-the-fact vetting of certain types of loans, or it could work to modernize and streamline its financial approval process. Streamlining the process could simply mean hiring more people to process licensee requests so that new funds could be investigated and cleared immediately.

Regardless, the LCB’s current investigative and enforcement strategy feels inefficient and targeted at unlucky businesses that have made mistakes. Many license cancellation proceedings initiated by the LCB are the result of voluntary disclosure of information by the licensee itself. Meanwhile, those bad actors working hard to cover up their illegal activity seem to be mostly left alone. It’s unclear what effect an amnesty or leniency program would ultimately have on eliminating truly bad behavior and inefficiency within the system.

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