As we move closer to federal marijuana legalization, we anticipate a renewed interest in Washington marijuana licenses. Washington does not currently issue any new marijuana licenses, meaning that if you want to enter the Evergreen State's marijuana marketplace, or if you are planning on expanding, you will have to acquire an existing license. Considering that federal legalization appears to be right around the corner, now is a good time to provide an overview of what it takes to buy a marijuana business in Washington State.
Prepare for an WSLCB Application
In order to own a Washington marijuana business, a buyer must first be vetted and approved by the Washington State Liquor and Cannabis Board (WSLCB) as an applicant. Under Washington law and WSLCB regulations, an applicant must qualify as a True Party of Interest (TPI). WAC 314-55-035.
In order to qualify as a TPI, an applicant must be a resident of Washington for at least six months prior to submitting an application. If the buyer is an individual then this just means that he or she must have lived in Washington for at least 6 months. If the buyer is a business, then every individual who owns the business, manages the business, or has a share in the profits of a business must have lived in Washington for at least 6 months. In addition, each of those individuals must also have a clean criminal history, as Washington uses a point system to determine whether a previous crime will prohibit an individual from becoming a TPI.
Buying the Business vs. Buying the Assets
Generally, a prospective buyer has two options for buying a business: (1) purchase the entity itself by buying all outstanding shares or membership interests, or (2) purchase the business’ assets, such as the inventory, equipment, fixtures, property, or licenses.
The WSLCB provides different application forms for the above two scenarios. In the first scenario, where the seller is acquiring equity in an existing business, the Change in Governing People form must be submitted to Business License Services (BLS) for processing by the WSLCB. In the second scenario, where a buyer is purchasing a marijuana business' assets including the marijuana license itself, the parties must fill out a general Business License Application along with a marijuana addendum. Like the Change in Governing People form, the Application and marijuana addendum must be submitted to BLS. The BLS's maintains a webpage with information and forms necessary for purchasing a business or assuming a license.
Ironing Out the Terms of the Deal
As with any business acquisition, a solid contract should always be in place before money exchanges hands. However, there are some additional and important things to consider when it comes to buying a marijuana business. For one, you cannot own a business unless and until you have been approved by the WSLCB as a TPI. The WSLCB does not care if you have already paid the seller for the business or for the license. In the eyes of the regulatory body if you do not qualify or have not been approved as a TPI then you do not own anything. Therefore, the marijuana business purchase and sale agreement should make the purchase price payable upon WSLCB approval. This can be done by sampling withholding payment until WSLCB approval, or by putting the purchase price into escrow with instructions to distribute the cash to the seller upon WSLCB approval. In addition, I have found in processing numerous applications with the WSLCB, that the agency likes to see language stating that the deal will not close without WSLCB approval. I usually include this language in any contract I draft, because it is a material term of the deal but also seems to please the WSLCB agents reviewing the application paperwork.
While the process of applying for a license can be somewhat arduous and time-consuming (usually taking 1-2 months but at times taking well over 6 months), with the right counsel and preparation, it can be done. If you have any questions about what it takes to own a Washington license, feel free to contact Green Light Law Group.
You can contact Daniel Shortt at firstname.lastname@example.org or 206-430-1336.