Washington Cannabis: Crimes That Affect Your License Application, Maintenance, and Renewal

Most of us do not intend to break the law, but occasionally we may be caught on the wrong side of law enforcement. Both felony and misdemeanor crimes can derail an individual’s or company’s initial marijuana license application or renewal process. The Washington Liquor and Cannabis Board (the “WSLCB”) utilizes a point system, and if a true party of interest (“TPOI”) in a cannabis business accumulates too many points based on criminal activity, that can jeopardize the company’s ability to obtain, retain, or renew its license. The severity of the crime dictates the number of points counted against the TPOI. If a TPOI accumulates eight points, they will jeopardize the license application or renewal.

Let’s briefly review the definition of a TPOI. Only Washington residents may own a licensed marijuana business, and a marijuana license must be issued and maintained in the names of all TPOI. The WSLCB defines TPOIs broadly. A legal owner of any shares or membership interest in a marijuana business and that person’s spouse are considered TPOIs. WAC 314-55-035 lists who must qualify as a TPOI for various marijuana business entity structures:

The WSLCB also considers as a TPOI any entity or individual who has the right to receive any percentage of the gross or net profits from a marijuana business, which could include key employees and financiers. Licensees must apply to the LCB to add or change any TPOI for any reason. The WSLCB has discretion to inquire into all matters with the sale or issuance of a TPOI’s ownership interest or proposed change to the marijuana business’ officers or owners. Because a marijuana license is issued in the name of all TPOIs, each TPOI must be a Washington resident at least six months prior to applying to the WSLCB.

As mentioned above, in the license application and renewal processes, the WSLCB reviews each TPOI’s criminal history and assigns a score to each TPOI based on a point accumulation system. All criminal history must be reported on the application, and each successful applicant is responsible to report any criminal convictions to the WSLCB within 14 days of such conviction for as long as they remain a licensee. As a general rule, subject to some mitigating circumstances below, any individual who accumulates eight or more points will be disqualified from the license or the application. This means that all TPOIs must be aware of what is going on in other TPOIs lives, and that business partners need to engage in the practice of full ongoing disclosure with each other and the WSLCB. Failure to disclose any relevant circumstances to the WSLCB results in a significant penalty in itself.

If a person is disqualified due to point accumulation, their spouse is also disqualified. For license applications at the entity level, the entity’s license will not be granted or renewed if any individual TPOI is disqualified. If an individual has a criminal case pending that would result in the accumulation of eight or more points, the WSLCB will hold the application until the case is final. However, if no final result is reached within 90 days on that criminal case, the WSLCB will administratively close the application.

The criminal points do not stay relevant forever. After three years or ten years, depending on the severity of the crime, certain crimes are no longer calculated. This is consistent with Washington’s pardoning certain marijuana-related convictions, as we discussed in a prior blog post. Also, the above point accumulations can be reduced in the WSLCB’s discretion. Up to two federal or state misdemeanor convictions in the prior three years that occurred before the initial license application, and that involved only the possession of marijuana, may not be assigned points. However, state misdemeanor possession convictions that accrued after December 6, 2013 (the commencement of Washington’s recreational cannabis program) that exceeded the allowable amounts will count toward point accumulation. In addition, the WSLCB will consider for mitigation, on an individual basis, any one state or federal conviction for the growing, possession, or sale of marijuana that arose prior to the initial license application, taking all circumstances into account.

Bottom line, the commission of a crime by a TPOI could result in a license revocation or an initial or renewal application denial by the WSLCB, and it is better to disclose rather than try to conceal it from the WSLCB.