Pubdate: Wed, 29 May 2013
Source: Stranger, The (Seattle, WA)
Copyright: 2013 The Stranger
Contact:  http://www.thestranger.com/
Details: http://www.mapinc.org/media/2241
Author: Ben Livingston

WHO WILL FUND START-UP POT BUSINESSES?

Liquor Board May Ban Out-of-State Investors

Most cannabis-related investment advice I've seen seems to distill 
down to this: Avoid companies that actually sell pot and instead 
invest in "ancillary" businesses-such as the hash-oil-machine maker, 
pot-selling software, and web-based weed advertising services. The 
typical reasoning for this reservation is the big federal question 
mark, the uncertainty about whether the Feds might start forfeiture 
proceedings against legal pot investments.

It turns out there might be another reason for investors to shy away 
from state-licensed cannabis companies: Initiative 502 may prohibit 
out-of-state investors from profiting from Washington's legal pot businesses.

At least that's been the state's interpretation. "The current 
thinking of the board is that all members of any license structure 
will need to have resided for three months in Washington," wrote 
Brian Smith, spokesman for the Washington State Liquor Control Board, 
when I asked him two weeks ago.

But Troy Dayton of the Arcview Group, a network of accredited 
investors interested in pot businesses, fears that a lack of outside 
capital could cause the state's legal pot experiment to fail. "When 
people are undercapitalized, they cut corners, they are unable to 
meet the consumer's need, and they are unable to commit energy to the 
things that matter to the public," he says. Dayton was buoyed by 
draft rules issued by the liquor board in mid-May, which make a 
distinction between owners-so-called "true parties of interest"-and 
financiers. "There is a residency requirement to be an owner, even a 
partial owner," he says. "There doesn't seem to be that requirement 
for financiers."

Can an investor really share in pot profits and not be considered an 
owner? "It's definitely a little ambiguous," says Hilary Bricken from 
Canna Law Group in Seattle.

But the state, upon further consideration, seems to be interpreting 
its own rules more conservatively. In response to my questions last 
week, the liquor board has clarified its position on out-of-state 
investments. "Being entitled to a percentage of the profits from the 
business would make someone a true party of interest," Smith tells 
me. "So, in essence, there is no allowance for an out-of-state 
financier that expects a percentage of the profits in exchange for a loan."
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MAP posted-by: Jay Bergstrom