By Darren Smith, Weekend Contributor

In a new twist to the bureaucracy retailers in the fledgling retail marijuana business in Washington face, the City Council of Wenatchee has denied a business license to a retailer approved by the State Liquor Control Board, which regulates the industry, to begin setting up shop.

Shaun Preder, an owner on behalf of SMP Retail, LLC last Tuesday filed a lawsuit against the city in Chelan County Superior Court seeking declaratory and injunctive relief for prohibition of plaintiff’s right to sell marijuana. The declaratory relief sought is for the court to find that the city’s prohibition violates state law codified in RCW 69.50.608 and Article XI Section 11 of the Washington Constitution.

If the city elects to litigate the case there could be ramifications throughout the state and possibly others where recreational marijuana is legal.

The precursor of this lawsuit began during a city council meeting on October 24, 2013 when the council voted four to three to uphold a city code, WCC 5.76.020 requiring all business licensees to comply with federal, state, and local laws. An amendment to the code was sought to provide for state licensed marijuana industries to engage in business activities within the city’s jurisdiction. According to the court filings Wenatchee Councilman Bryan Campbell stated “Federal law is superior over the state.” The amendment was rejected.

The lawsuit against the city alleges:

[O]n August, 29, 2013, the United States Department of Justice released the Cole Memo to all United States Attorneys that notes, “[o]utside of [eight listed federal law] enforcement priorities, the federal government has traditionally relied on states and local law enforcement agencies to address marijuana activity through the enforcement of their own narcotics laws.”

The Cole Memo also states that, “enforcement of state law by state and local law enforcement and regulatory bodies should remain the primary means of addressing marijuana-related activity.”

Contrary to the notion that federal law must change before Washington State marijuana laws (as amended by Initiative 502) can take effect and be implemented, the Cole Memo states that a “robust [state regulatory] system may affirmatively address [federal] priorities by, for example, implementing effective measures to prevent diversion of marijuana outside of the regulated system and to other states, prohibiting access to marijuana by minors, and replacing an illicit marijuana trade that funds criminal enterprises with a tightly regulated market in which revenues are tracked and accounted for.

Shaun was one of three prospective retailers to win the Liquor Control Board’s lottery that granted the state licensed right to operate his marijuana business in Wenatchee. Subsequently, he and his business passed the requisite background and financial checks. In an interview with reporters, Shaun has invested nearly $11,000 dollars toward leasing a retail storefront on the expectation he would be granted the right to engage in his business.

According to court papers:

[O]n April 23, 2014 the [State Liquor Control] Board notified SMP Retail that its application had been selected as a potential marijuana retail store in Wenatchee. On May 3, 2014 the Board received a written Notice of Objection to SMP Retail’s marijuana application from Defendant.

Defendant’s Objection stated:

The City disapproves of the application because it violates current City code…It is a conditional precedent to the issuance of a business license under the City code that the business engaged in by the applicant be lawful under any applicable city, state or federal law. The Federal Controlled Substances Act classifies marijuana as a Schedule I Drug. Under federal law it is illegal to grow, manufacture, distribute, or possess marijuana. Consequently, the proposed marijuana production business [sic] would be ineligible to obtain a City business license. If it attempted to operate without a City business license, it would be operating contrary to City code and federal law.

On May 13, 2014 the Board sent SMP Retail a letter stating that SMP Retail had the option to: negotiate with the city concerning its objection, withdraw its retail marijuana license application, or move forward in the State licensing process despite Defendant’s objection. The same day, SMP Retail notified the Board that it would move forward with the State’s licensing process, regardless of Defendant’s objection.

A “catch-22” situation arises with SMP Retail’s bid to enable its business. According to the complaint:

To receive a marijuana retail license from the State, SMP Retail must undergo a final site inspection of its business location by the Board.

The State’s site inspection requires that SMP Retail’s business location be fully operational.

In turn, in order to receive its marijuana retail license, SMP Retail must complete any necessary build-outs prior to the State’s inspection.

SMP Retail has yet to undertake any necessary build-outs for purposes of its State inspection.

Nonetheless, SMP Retail has expended approximately $10,742.50 to date on rental fees to its current landlord, utilities, sewer usage, and the Board’s marijuana license application fee.

In May 2014, SMP Retail applied for a business license from Defendant. To receive a business license from Defendant, Defendant requires that applicants undergo a full site inspection of the business location.

As a result, SMP Retail must complete any necessary build-outs prior to the City’s inspection.

Even if SMP Retail completes a full build-out that would meet the Board’s licensing requirements and also meet Defendant’s licensing requirements, the City will ultimately deny SMP Retail a city business license solely on the basis of the federal law language in WCC 5.76.020.

Though SMP Retail may receive a license to operate from the Board upon a successful final inspection, Defendant will not permit SMP Retail to open its doors due to its prohibition against marijuana businesses.

According to Initiative 502’s author the consequences of Wenatchee challenging the lawsuit, Alison Holcomb said “[I]t could be litigated all the way up to the United States Supreme Court. Expert witnesses, documentary production, and a lot of work time and effort” and could cost the city hundreds of thousands or potentially millions of dollars.

Wenatchee does have possibly a defense in that despite the Cole Memo, federal law is still applicable though the Department of Justice declaring it would not necessarily pursue enforcement against the state legal marijuana industry in Washington. But there do remain issues of pre-emption by Washington State law. Nevertheless it might come down to whether the Wenatchee City Council decides to take on this potentially costly battle; a battle that clearly is against the tide of change. Moreover, Chelan County residents, within which Wenatchee is the county seat, voted fifty two percent in favor of Initiative 502 despite the area being politically conservative.

Wenatchee’s council should take a moment to reflect on the cost of such expensive endeavors. Previously the city voted to construct a general events stadium costing in excess of fifty million dollars, and floating a municipal bond toward its construction. Development costs were over-budget and afterward for a few years the stadium was in the red by millions of dollars per year. The municipal bond to finance the construction was heading toward a default that potentially could bankrupt the city. In the end, the taxpayers rescued the project with a sales tax increase.

The next city council meeting is scheduled for June 12th. Hopefully they will recognize what might be at stake here, because the future might require them to suffer the benefits of their decision.

The court filing can be read HERE. (PDF)

By Darren Smith

Sources:

King5 News
Seattle Times
SMP Retail, LLC v. City of Wenatchee 14-2-00555-0 via Public Disclosure Request
Title XI Section 11: Washington Constitution
Revised Code of Washington: Chapter 69.50 RCW, et seq.
Washington Administrative Code: Chapter 314-55 WAC, et seq.
Wenatchee City Code: WCC 5.76.020
City of Wenatchee, WA

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