Jessica Mann, left, gives change to a customer following a recreational marijuana purchase at Cannabis City, Tuesday, July 7, 2015, in Seattle.

Jessica Mann, left, gives change to a customer following a recreational marijuana purchase at Cannabis City, Tuesday, July 7, 2015, in Seattle.

Ted S. Warren/AP

The passage of Initiative 502 in 2012 launched Washington’s regulated marijuana system. But officials watched with dismay as dozens of unlicensed medical marijuana dispensaries sprouted on street corners as well.

Now, under a new state law, regulators are seeking clarity about these “gray market” marijuana providers. They must get state retail licenses or close their doors. Liquor and Cannabis Board spokesman Brian Smith says the number of new licenses his agency can grant is open-ended.

“No one knows for sure. Because what the legislation did is, it did open it up to say, we want to take those people now that are operating in the gray market so to speak and be able to move into the fully regulated state system,” he said. “And no one knew at the time when the legislation was going through how many even existed.”

Instead, applicants should get a license if they meet certain criteria: that they opened before the passage of I-502, paid their taxes and obtained local business licenses. Smith said the number of marijuana retail stores in Washington could double as a result. That seems like daunting news for existing store owners, but Smith said it’s better than the current situation.

“The larger problem was that they were competing with people down the street that weren’t paying taxes or otherwise abiding by the same regulations that they were.”

In Seattle’s SODO neighborhood, Maria Moses is still putting the finishing touches on her recently opened marijuana retail store, Dockside SODO. She’s thrilled that it has room for parking and space to accommodate bigger groups.

“We have a Japanese-language tour group who is interested in making this their regular stop,” she said.

Moses owns both retail stores and a medical marijuana dispensary. She said awarding more retail licenses won’t necessarily do anything to help medical marijuana patients. To give medical advice, store owners must take another step to get what’s called a “medical endorsement” from the state.

“If all these places are really going to get a medical endorsement, I think it’s a great thing for patients. That’s the part we don’t know. It sort of sounds like they’re opening up the recreational retail market but they’re not requiring that you get a medical endorsement. So to me, that’s just a back door to open up more recreational shops.”

For existing retailers the new competition comes with one more challenge – a new law also allows cities to reduce the existing “buffer zones” around certain facilities. Marijuana businesses must still be 1,000 feet from schools and playgrounds, but in the future they could be just 100 feet from parks and childcare centers. Moses says that will set off a scramble for new store locations.

“That actually frees up quite a few places because there are a LOT of daycares in this city.”
But her business partner, Aaron Varney, said after building out their new store, they’re in no position to move.

“You know, we’re in a location today because of the thousand-foot rule and it was a location that needed a lot of work to upgrade into a suitable retail environment.”

The flip side to all this expanded competition is a new degree of enforcement on dispensaries that don’t get a license. Both Seattle and King County have sent letters to dispensaries, telling them their time is about up.

King County Prosecutor Dan Satterberg said his office sent letters to 15 dispensaries in Skyway and White Center telling them to close.

“My goal is for those stores to be out of business, they need to comply with the law.”

He said five have done so but at least 10 remain open. Satterberg said he doesn’t plan to arrest these business owners, but his office is preparing civil lawsuits against them.

“The next step is to share a draft of that lawsuit with selected stores and give them a choice – do you want to be sued, hauled into court, pay a lawyer, or are you willing to voluntarily shut the doors on a certain date that we’ll negotiate,” he said.

The Liquor and Cannabis Board expects to issue its proposed rules for the new round of retail licenses later this month. State law requires that all marijuana businesses obtain licenses or close by next July.