How Washington State Screwed Over Its Medical Marijuana Dispensaries A Loophole in the Recreational License Application Process Created a Black Market for Dispensary Employee Pay Stubs and Left Longtime Dispensary Operators in the Dust

A loophole allowed applicants with no background in medical marijuana to be treated as if they were law-abiding, taxpaying veterans of the industry.

On July 1, when the Cannabis Patient Protection Act (SB 5052) took effect, all dispensaries without an I-502 license were forced to shut down, sending many of the state's medical marijuana patients into a panic. Patients worry that the recreational market doesn't have enough medicinal cannabis for their needs and that what is available is not affordable. Many point to the fact that the Washington State Liquor and Cannabis Board (WSLCB) issued only 222 new retail licenses to replace more than 1,500 medical marijuana dispensaries.

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But there's another aspect that should trouble patients, though few may know about it. Thanks to a loophole in the state's licensing process, many longtime dispensary operations were shut out of the recreational market. New actors were able to game the system by buying pay stubs from former medical marijuana dispensary employees in order to bolster their applications.

"[The state was] supposed to create new licenses to move over the [medical marijuana] system so that the patients could be served," said John Davis, owner of the Northwest Patient Resource Center, who applied for but did not receive an I-502 license. "That's not what they did. They were just giving licenses to people who were scamming the system."

As a result of SB 5052, which mandated that the medical marijuana market be folded into the recreational one, the WSLCB was instructed to open a new round of retail cannabis licensing and "develop a competitive, merit-based application process that includes, at a minimum, the opportunity for an applicant to demonstrate experience and qualifications in the marijuana industry." Applicants were broken into three levels of priority based on a list of criteria, including whether or not they had operated or were employed by a dispensary before January 1, 2013.

The idea was to help the most legit dispensaries transition to the legal market. But because a person who had worked just one day at a dispensary was given priority to get a license, and because applications could include multiple people, a lot of former budtenders suddenly found themselves in high demand. In exchange for their proof of employment and willingness to sign on to an application, they could be paid handsomely. Last November, I searched Craigslist for "I-502 Priority I" and found several postings offering to buy or sell pay stubs for anywhere from $80,000 to $100,000.

This loophole allowed applicants with no background in medical marijuana to be treated as if they were law-abiding, taxpaying veterans of the industry.

To make matters worse, the WSLCB blindsided applicants by announcing a cap of 222 new medically endorsed stores late in the application process. Those 222 stores were allocated by jurisdiction, with more populous, higher-selling areas getting larger allocations of licenses. Still, that left many places, including Seattle, with far fewer licenses than qualified applicants, creating fierce competition. Up until shortly after the new cap was announced, the WSLCB had assured applicants that there was no hurry.

"They were saying to me, 'Don't worry, it's not a race, there's plenty of time, we'll get to you,'" said Davis.

Even more frustrating, Davis said the state investigators who were charged with vetting his application were elusive, uncooperative, and disorganized. One investigator, he said, went on vacation for four weeks without notifying him, and another e-mailed the login information for his application to a competing applicant by mistake. The error put him weeks behind other applicants, Davis said.

Those who received licenses, Davis said, were people who were able to throw down $100,000 to game the system, or those who already owned recreational stores. He conducted a study of Seattle's 21 newly licensed "medically endorsed" recreational stores and found that a significant number of them were newly created. Only nine had operated dispensaries prior to the application process, he said, and only seven of those existed before 2013. Seven licensees created entities after the application process was already under way.

Davis was denied a license, despite operating one of the state's oldest-running dispensaries. Now he's suing the WSLCB, contending that its rules on priority licensing deviated from the spirit—and, to some extent, the letter—of the law.

In an e-mail, WSLCB director of communications Brian Smith acknowledged the issue of the pay-stub scam, saying: "From the beginning I've seen quotes from applicants [who] say they would try to game the system. There will always be people who will try to cheat." But, he added, "our investigation process is very thorough. We also work with other agencies to review and verify the information submitted as correct." However, Smith didn't address if the state was able to verify whether applicants would actually be involved on a business or operations level with the application they were included on.

Davis isn't the only critic of the WSLCB's licensing process. His suit includes about a dozen others, including Olympia's Rainier XPress, a dispensary that worked primarily with veterans suffering from PTSD.

"In Oly, there were five available licenses," said Patrick Seifert, Rainier Xpress's owner. "Three of the five licenses went to one fucking guy. The other two went to people who already had stores. How is that fair? How are they spreading it out to all of the good players that were supposed to get them?" Good question.