Understanding Prohibited Practices Between Producer/Processors and Retail Licensees in the Cannabis Industry
A large part of LCB Enforcement and Education officers’ time is spent working with licensees to provide education and build relationships. The goal is to help businesses succeed within the framework of Washington State laws and rules.
One of the more prominent topics lately has been a desire for a general overview of what is allowable in financial agreements between cannabis producers, processors, and retailers. This article is being provided to clarify terms and practices, and assist licensees.
Direct Money’s Worth
Direct money’s worth involves a producer or processor giving tangible items such as money or gifts to a licensee or a retailer requiring the producer or processor to engage in prohibited practices as a condition of doing business. This would include loans of money, gifts, or services.
Providing Money’s Worth by Indirect Means
Indirect money’s worth is producer or processor activity that could influence a retailer. This includes providing goods or services above nominal value to others, such as the retailer’s employees or other third parties, to influence the retailer. Any act of the processor or producer to entice customers into a retailer’s store would be also considered in-direct money’s worth.
What is Allowed
Such items, of nominal value, that are specifically exempt from Money’s Worth Prohibitions include:
- Branded promotional items: lighters, pencils, apparel and similar items valued at $30 or less
- Education participation in “Vendor Day” or similar event
- Listing locations that carry product on the Producer/Processer website
Please note: None of these allowed activities can be required by either licensee as a condition of business (RCW 69.50.585).
What is Not Allowed
Items that are considered “Money’s Worth”:
- Producer or processor lending or giving money to a retailer
- Gifts beyond nominal value
- Extension of credit
- Volume discounts
- Discounting product prices to one retailer over another
- Licensees creating a second company to give away items or sell items below true market value to a retailer
- Producer or processor having or sponsoring events for licensees or employees of a retailer
- Incentive programs (swag, prizes, or cash for selling a producer/processor’s items)
- Negotiating any discount for customers of a producer/processor’s product (rebates, split discounts, custom products, etc.)
- Retailers requiring bulk discounts, rebates, custom products, or services outside of what is allowed in RCW 69.50.369
Please note: This is not a comprehensive list. A licensed retailer may purchase these items at fair market value from another licensee. A violation of the law may impact all licensed parties (RCW 69.50.369).
Relevant RCWs and WACs
In summary, a non-retail entity may not have an interest in or undue influence over a retailer. Nor can a retailer require non-retail licensees to engage in prohibited practices as a condition of doing business. Undue influence occurs when a non-retail entity provides money or money’s worth items to a retailer. Money’s worth encompasses money, items of value, and services. Money’s worth can also be provided in an indirect manner to the retailer. The money worth’s prohibitions are to prevent undue influence over other licensees and ultimately, on consumers. Licensees are encouraged to contact their assigned Cannabis Compliance Consultant with any questions.
