How To Process Marijuana Products Legally In Washington State

STEPS TO BECOMING A MARIJUANA PROCESSOR IN WASHINGTON STATE

Maybe you’re exploring the possibility of investing in or buying an existing marijuana processing business. Maybe you’re just waiting for the day the Washington State Liquor and Cannabis Board (WSLCB) reopens applications for new licenses. Either way, the information below will let you know the steps you need to take to stay in compliance with Washington’s marijuana laws.

Step 1: Plan

The marijuana processors are sort of the middle men/women in the legal Washington marijuana trade. They take the weed grown by the producer and make the treats, chocolates, baked goods, sodas, candy and other cannabis-laced products to sell to the retailers.

Once you’ve decided you want to process cannabis into edibles, drinkables or other weed-infused products for recreational use in Washington, you need to hammer out a business plan. This plan should include your financing, market analysis, marketing plan, operations plan, as well as what will separate your cannabis products from the competition. When formulating your plan, study existing businesses—particularly if you plan to buy one. Carefully review the new laws and make sure your plans fall within the bounds of the state’s rules.

In order to get or maintain a marijuana processor license, the rules require that your facility has planned protocol for each of the following:

Security
Traceability
Employee qualifications and training
Destruction of waste products
Transportation of product to retailer, packager, and/or processor
Testing procedures and protocol

You’ll also need a description of your processing facility, an in-depth operation description (including how and what the marijuana will be turned into), and any and all equipment and solvents, gases, chemicals, and other compounds used to create extracts and process cannabis-infused products. In addition, you’ll need a description of the types of products that will be processed at this location together with a complete description of their processing.

The bottom line for your business plan: be as descriptive as possible.

Step 2: Find the Right Location

There are strict rules in Washington for where you can legally process marijuana. Even if you’re buying a business and keeping its current location, it’s important to know the laws. You never know when you’ll want (or need) to upgrade your location.

An advantage processors have over retailers is that you don’t have to sweat finding the most convenient place for customers. An out-of-the-way location can make it easier to adhere to the state’s zoning requirements. Essentially, you need to be sure your processing facility is located at least 1000 feet from any elementary or secondary school, playground, recreation center or facility, child care center, public park, public transit center, library, or game arcade that allows minors to enter. The 1000 feet rule can be a little variable—as of June 2015, counties and municipalities have the right to enact an ordinance reducing the 1000 ft buffer to a minimum of 100 ft (with the exception of elementary schools, secondary schools and playgrounds). For example, Olympia Ordinance 7046 reduces the buffer zone in the state capital to 500 feet.

Counties and municipalities can also prohibit marijuana producers or processors in areas zoned for residential or rural use. Moses Lake, for example, limits producers and processors to specific industrial areas. Some Washington cities don’t allow marijuana businesses at all, including Leavenworth, Poulsbo, Pomeroy, Othello, and Richland.

Step 3: Get the Money

Arguably, the most important step of entering into any business is obtaining financing. What makes growing and processing cannabis more difficult than other businesses is that entrepreneurs may be hard-pressed to find financing options through traditional methods. Due to federal banking restrictions, banks may not want to offer a small-business loan to a “risky” venture existing in a federal gray area. As a result, you may need to seek out investors.

When recreational marijuana processors first opened their doors in Washington, they had some big financial hurdles, thanks to I-502 rules. In particular, all financiers had to be Washington residents, living in-state for at least three months. Nowadays, it’s possible to apply to the WSLCB to accept funds from an out-of-state financier. You’ll have to submit an Application for Additional Funding to the WSLCB and receive approval. Out-of-state financiers have to be US residents.

Step 4: Choose a Business Entity

Because applications for new marijuana processor licenses are on hold, you don’t necessarily have the luxury of choosing the best business entity type for your own goals. If you decide to invest in or buy an existing licensed business, you get what you get. However, you can still make informed choices. It’s important to understand and carefully consider the impact the legal form of your business will have on your operations.

If you’re thinking about a sole proprietorship, realize that you personally will have unlimited liability. You are the business. There is no legal separation between you and your personal assets and the assets of your business. What this means for you is that you are personally responsible for all debts or actions on behalf of your business. Your assets are on the line in the case of a lawsuit or unpaid bills.

If you are operating an LLC, there is limited liability. This means that your personal assets are generally protected in case your LLC were to be sued or fall under any other financial or legal burden. It is usually only the assets of your LLC that would be at risk, not yours personally. However, the corporate veil can be pierced and your assets can be at risk with poor business habits. For instance if you were to put a personal dinner on your business account, or buy a big screen TV under your company’s name and take it home, this would give a plaintiff a foothold in coming after your personal assets. So with an LLC, your personal assets are protected, but it is not ironclad, bullet-proof protection.

If your business operates as a corporation, you will benefit from limited liability as well. The personal assets of shareholders who have purchased your corporation’s stock are usually only responsible for their own stock investments. The corporation, since it is considered its own separate business entity apart from shareholders and owners, is legally responsible for itself. Debts, etc. do not fall onto the shoulders of individuals, but rather onto the corporation as a whole, separate entity. A corporation’s corporate veil can also be pierced, so you need to take in the same considerations as with an LLC when deciding which entity is right for your cannabis business.

For more information on differences between an LLC and a corporation, check out our LLC vs. Corp Comparison Guide.

Step 5: Hit All the Requirements

No government authority will be kind to you if you start processing marijuana without meeting all the requirements. Before baking an industrial-size batch of brownies, the top regulatory requirement on your list needs to be obtaining a marijuana processor license. But if you’ve completed the previous four steps, you should be in a good position.

The marijuana processor license application is only a small addendum to the Master Business License application. Even if you’re not filling out the application (if you’re investing in or buying an existing marijuana business), you’ll still need to have some of the same key information readily available, including:

Criminal background checks on financiers, owners, and their spouses
Government-issued identification for all financiers, owners, and their spouses
A financial statement accounting for all money invested in the business
Copies of bank statements and recent tax returns

After you’ve obtained your marijuana processor license and gotten your shop in order, you should finally be ready to start processing.

Requirements for Selling Marijuana in Washington
Requirements for Growing/Producing Marijuana in Washington

What’s the cost of the Washington marijuana processor license?

The annual license and renewal fee recently dropped from $1480 to $1381. Waiting for the WSLCB to open applications again? New applications also require a nonrefundable fee of $250.

Can I apply for a new Washington marijuana processor license?

At the moment, no. The WSLCB isn’t accepting applications for new licenses and doesn’t currently have any plans to open applications again.

Can I buy a new Washington marijuana processor license from an existing business?

It’s not quite that simple. The licenses themselves aren’t transferable assets, which means a business can’t buy or sell a license to another business. You can, however, purchase a business entity that holds a license. When investing in or buying an already-licensed business, be sure to file a Change in Governing People, Percentage Owned and/or Stock/Unit Ownership form ($75) with the WSLCB. You’ll also have to submit forms (which vary depending on business entity) to the Secretary of State indicating changes in governors and owners.

Be sure to do your research. When you buy a business, you don’t just get the good stuff. You also take on any debts or contracts as well.

Who can hold a Washington marijuana processor license?

You have to be at least 21 years old and have been a Washington resident for at least 6 months. Business entities (like LLCs and corporations) can hold licenses as well, but the entity must have been formed in Washington and all members in the business must have been residents for at least 6 months. All licensees have to maintain their residency for as long as they hold their licenses.

Is there a limit on the number of marijuana processor licenses the WSLCB can issue?

No.

Can I have a marijuana processor license and a marijuana retailer license?

No. You can have a marijuana processor license and a producer license. But you cannot be a marijuana grower/processor and a seller.

Can I have more than one marijuana processor license?

Yes, you can also hold up to three processor licenses.

If I have a processor license, how much weed can I have on my premises at any given time?

A maximum of six months of your average amount of usable marijuana and six months average of your total yearly production.

Does Washington require that my marijuana-processing facility be covered by a particular kind of insurance?

Yes. Washington requires that you carry a commercial general liability insurance policy provided by a carrier with a rating of no less than A—Class VII. The WSLCB has to be listed as an additional insured on all of your general liability, umbrella, and excess insurance policies.

What kind of security requirements does Washington have for cannabis processing facilities?

Your marijuana shop must meet the following security requirements, according to the I-502 rules:

ID Badges:

All employees on licensed premises must hold and properly display an employer-issued ID badge at all times while at work.

Alarm System:

At a minimum, you need a security alarm system on all perimeter entry points and windows.

Surveillance:

At bare minimum, your shop needs to install a video surveillance camera with a resolution of no less than 640×470 pixels, and the system needs to be Internet Protocol (IP) compatible. All cameras need to be running 24 hours a day and be able to identify any individuals on the premises and any individuals approaching any of the building’s entrance points at no less than 20 feet from the premises. Copies of all footage on the premises must be kept for at least 45 days. In areas where marijuana is processed, the cameras need to be able to identify an individual at all times. Equipment and other processing items cannot obscure the camera’s view.

Traceability:

You must keep extensive record of all inventories and upload records in the state’s database. The following needs to be kept completely up-to-date in the system:

When marijuana enters the system (when transported or purchased from a grower)
When cannabis is processed or destroyed
When marijuana-infused products are transported out of the facility
Any theft
Any samples given for testing or to other licensees in negotiating a sale
All sale records
All excise tax records
Other information that the board may specify at a later date

Can I give out free samples of my product?

Yes, but only to other licensees for the purpose of negotiating a sale. All samples given away must be logged into the traceability database. You can only give away 2 units or no more than 6 ounces of solid product or 24 ounces of liquid product each month to any one licensee.

Can I sample my own product?

Yes, but you can only sample one unit per batch of marijuana-infused products per month. The individual who does the sampling must either be you or one of your employees. The sampling must be logged into the traceability database.

What department regulates marijuana edibles?

As of April 1, 2018, the Washington State Department of Agriculture (WSDA) is the authority for licensing and regulating products containing marijuana. What does this mean for those making edibles and drinkables? In addition to your WSLCB marijuana processor license, you’ll need to apply for a WSDA endorsement. The initial and annual cost of the endorsement is $895.

How do I legally transport marijuana between licensed facilities?

The WSLCB has created licensing procedures so that common carriers can transport marijuana and marijuana products from one licensed facility to another. This means that the person who drives your marijuana products to the retailer needs to get a license from the WSLCB. The Marijuana Transportation License fee is $250.

What other permits does my marijuana business need?

Besides standard business permits, marijuana processors have to take in consideration how their activities affect the environment—you may need permits for air quality, water quality, solid waste handling, hazardous waste management and more. For instance, in some areas, you’re required to submit a State Environmental Policy Act (SEPA) checklist so the state can see what kind of impact your business will have. In King, Kitsap, Snohomish and Pierce Counties, marijuana producers and processors are required to submit a pre-construction application with the Puget Sound Clean Air Agency—an application that comes with a $1,150 price tag.

Some counties and municipalities have permits just for the privilege of being a marijuana business. For example, the City of Kenmore charges $500 a year for their annual Marijuana Business License.

How can Northwest Registered Agent help me?

We can serve as your Washington registered agent and receive all official mail and service of process for your business, as well as keep you up to date on all that is required to keep your business active.

Registered agents are required for any business entity registered with the Secretary of State. When you hire Northwest Registered Agent as your registered agent, it’s a flat rate yearly price of $125 a year. You’ll have an online account that tracks your report due dates and when your yearly service with us is up. Any documents we receive locally for you are uploaded into your account immediately for complete viewing. If or when you get served with a lawsuit, we can email up to 4 people and your attorney at the same time for real-time complete viewing of a lawsuit. You’ll receive annual report reminders as well. Our service is the same price every year, and there are no weird fees or cancellation fees.

For more information or for WSLCB applications or forms, contact:

Washington State Liquor and Cannabis Board
PO Box 43098
3000 Pacific Ave SE
Olympia WA 98504-3098
(360) 664-1600

Website: WA Liquor and Cannabis Board