The State of Washington strictly regulates the relationships between marijuana producers and processors, on the one hand, and marijuana retailers, on the other. Many states permit the same persons to hold financial interests in all three types of licenses. But not Washington. Under RCW 69.50.328, neither a licensed marijuana producer nor a licensed marijuana processor may have a direct or indirect financial interest in a licensed marijuana retailer. This means that vertical integration from production to retail is prohibited in Washington, though it is common in Oregon and other jurisdictions.
This statutory prohibition on cross-tier financial interests led the Liquor Control Board (“LCB”) to adopt a regulation commonly known as the “tied house” regulation. The tied house regulation provides that “No industry member or licensee shall enter into any agreement which causes undue influence over another licensee or industry member.” WAC 314-55.018. Expressly exempted from the category of “undue influence” are agreements about the placing and accepting of orders for the purchase and delivery of marijuana made in accordance with usual and common business practice, and which are otherwise lawful. But exactly what the tied house regulation means in a practical day-to-day sense has been unclear.
In a recent opinion,