Washington’s Ever-Shifting Residency Requirement for Marijuana Businesses

Despite lobbying efforts to the contrary, Washington has maintained its strict state residency requirement for Washington cannabis business owners. If a person wants to own 0.001% of a cannabis business, the Washington State Liquor and Cannabis Board (WSLCB) requires that person to be a Washington resident and to go through about 1,000 hoops before it authorizes the licensed cannabis business to issue that ownership interest. In general, cash-starved producer-processors looking for investment and out-of-state investors have pushed for the law to change, while more established retailers and certain producer-processors prefer the lack of out-of-state competition. The residency issue is resonating in Olympia, with many legislators openly discussing lifting or altering the state restriction on out-of-state ownership.

While the overall topic of the residency requirement is often discussed, one issue that doesn’t get as much attention is how the WSLCB is currently defining residency. And that’s because they don’t— at least not directly. The WSLCB’s marijuana regulations define the term “residence” as a place where a person physically resides, but that is only in the context of the rule that marijuana licenses cannot be issued to businesses whose location is at a personal residence. The section talking about the residency requirement, WAC 314-55-120(10) uses the terms “resided” and “residency requirement,” but the rules do not define those terms.

Neither does RCW 69.50, the section of Washington’s legislative code that contains its statutes related to regulated marijuana businesses. RCW 69.50.331(1)(b)(ii) contains the legislative requirement that someone must have “lawfully resided in the state for at least six months prior to applying” for a marijuana business license. Whether the drafters of that section meant “resided in Washington without breaking any laws” or “would be considered resident of Washington as a matter of law”, we cannot really say. The statute does not contain any significant guidance on what does and does not constitute residency.

When Washington first opened for licensing, the interpretation of these sections was key. Back then, in 2013 and 2014, the residency requirement was only three months, and entrepreneurs looking to take advantage of the market had been trying to figure out the least that they could do to establish residency in order to qualify for the new licenses. When people asked the WSLCB what constituted residency, they were deferred to other state agencies that had defined residency. I personally have been on multiple phone calls with WSLCB investigators where they deferred to the Department of Revenue’s (DOR) definition of residency.

The problem with deference to the Department of Revenue is that the WSLCB generally acts like it wants a narrow definition of residency, whereas DOR wants a broad definition of residency. DOR wants people to be considered residents because that means that they owe sales tax and/or use tax on their purchases. Even the WSLCB’s old rules FAQ still has a link (albeit a broken one) to this Access Washington webpage saying that there are many ways that one can show that he or she is a Washington resident, including registering to vote and obtaining a Washington driver’s license.

Although it provides resources that make it seem like it is easy to prove residency, the WSLCB’s enforcement officers and investigators continue to treat residency as a strict requirement that one physically inhabit Washington virtually every day of the year. We have an administrative case happening right now where the WSLCB claims that our client is not a Washington resident, even though that person owns residential property in Washington and gets all of his or her mail there, is registered to vote in Washington, and maintains a Washington drivers license (and no other state licenses or IDs). They can’t point to a single written definition of residency that this client violates, but they continue to fight on this point.

This isn’t all about one case, one client, or even one issue. The WSLCB is showing time and time again that it likes to live in the zone of vaguely written or non-existent regulations and stringent enforcement of the WSLCB’s interpretations of those vaguely written or non-existent rules. Unless you assume that the WSLCB has malicious intentions in drafting and enforcing its rules in this way (which we do not assume), it does not make sense that they would not adopt a stringent definition of residency if they want to enforce it that way. But until the WSLCB amends its rules by adopting an actual definition of residency, it will continue looking like it is speaking out of both sides of its mouth.