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Nation & World

Pot-shop applicants fear crowded lottery won’t be fair

Dozens of cannabis plants sit underneath dim green lights at a growing operation in 
the mountains surrounding Soquel, Calif., on January 8, 2014. Some locals are trying 
to implement an accreditation program that assures health and safety measures for 
marijuana. (Kevin Johnson/Santa Cruz Sentinel/MCT)
Dozens of cannabis plants sit underneath dim green lights at a growing operation in the mountains surrounding Soquel, Calif., on January 8, 2014. Some locals are trying to implement an accreditation program that assures health and safety measures for marijuana. (Kevin Johnson/Santa Cruz Sentinel/MCT)

SEATTLE — With business booming in Colorado’s new legal pot shops, a license for a retail pot store in Washington state is a coveted prize, a “golden ticket,” said pot entrepreneur John Davis.

Look no further than the 2,035 applications, and counting, heaped upon state officials for just 334 proposed shops. For qualified applicants who make it through the state’s vetting process, a lottery awaits to pick winners.

The culling has started. State marijuana licensing manager Becky Smith told Liquor Control Board members last week that many retail applicants were disqualified at first glance because their proposed locations were in residences or did not comply with the state law requiring a 1,000-foot buffer from venues frequented by youth.

Board spokesman Brian Smith said more than 500 applications have already been deemed invalid and that applicants will be notified this week.

Recent tweaks by state regulators in the vetting process should disqualify others, comforting some applicants who believed that rivals were up to shenanigans to increase their chances of securing a license.

Still, concerns about fairness remain, as the state sifts through more than 6,600 producer, processor and retail pot-license applications, an abundance that wasn’t anticipated by the state’s top consultant, Mark Kleiman, who quipped several times last year, “What if we threw a legalization and nobody came?”

In Seattle, there are 408 applications so far for just 21 stores the state has allocated to the city. Many of those applicants are vying for the same locations, which are scarce given city zoning and the state’s 1,000-foot buffer. For instance, five applicants have filed for a shot at a location in the 10500 block of Lake City Way Northeast that appears to comply with the law.

That’s led some to complain that competitors are exploiting gaps in the licensing process. In a letter last week to state regulators and legislators, applicant Anne Martens alleged others are “trying to game the system.”

One concern of Martens, former communications director of the state’s Office of Financial Management, is that entrepreneurs are coordinating to “stack” applications at a given location. A lottery winner, in theory, would then strike a business deal with a cohort in the stack so both make out, said Hilary Bricken, an attorney who represents Martens and other entrepreneurs.

Licenses can’t be sold outright. But businesses can be sold; then the new owner would have to go thorough state vetting before getting licensed. Applicants and investors are limited to three store licenses to curtail market domination by a few.

“It’s almost like straw applicants,” Bricken speculated. “That other person has agreed to sell you their license or to hire you on. The idea is to drown other applicants in the pool.”

Davis and Ryan Kunkel, who both run medical-marijuana dispensaries in Seattle and are applying for recreational retail licenses, also believe such schemes are occurring.

Part of the problem had been what applicants saw as a lack of clear direction from state regulators.

The state Liquor Control Board’s power-point presentation in licensing workshops late last year said applicants’ locations did “not need to be finalized to apply.” Applicants needed a compliant address but the Liquor Control Board, which is implementing the voter-approved legal-pot law, didn’t initially require evidence that the applicant had a deal to use the location.

“We want to work with you,” licensing manager Smith told potential applicants at a workshop in Ellensburg, Wash., late last year.

Davis and others took that to mean that if their proposed locations didn’t comply with rules, the state would put their application on hold and allow them time to find a new location.

Davis envisioned scenarios in which entrepreneurs plunked down $250 to apply, listed a Burger King — or in one actual case, the Seattle Central Library — as their site and then hoped to land in the lottery and win a valuable store license.

When Jody Hall applied for a retail license just before the state’s Dec. 20 deadline, she put down a placeholder address that she knew wasn’t viable. But she believed she had time to find a deal at a legal location under the rules.

That is not the case. People who applied with noncompliant addresses are automatically being disqualified; the state is giving those with legal locations 14 days to show they have a commitment from the landlord. The rules were clear, according to regulators, and it was up to applicants to make sure their location met the 1,000-foot buffer at the time of application.

That has allayed some concerns.

When Martens wrote officials Jan. 3, she said her chief concern was that the state wasn’t requiring proof that an applicant actually had a deal with a landlord.

“Our attorneys suggested that people were paying others to apply at the last minute, upping their number of entries into the lottery,” Martens said. “This favors applicants with lots of money, or applicants who didn’t do the work to get a signed lease, and puts people who followed the rules at a disadvantage.”

But by late that afternoon, Becky Smith had assured her that wouldn’t be the case.

“Applicants have to bring something from a landlord. They’re not going to game the system. If they don’t have a location, they’re not getting a license,” said Liquor Control Board spokesman Brian Smith.

This was welcome news to Martens. “One applicant per compliant address is as it should be,” she said. “And assuming they have a real claim to the property, it should cut down on any post-lottery scheming.”

Pete O’Neil is one of the five applicants vying for the Lake City Way site, where he has a signed agreement with the landlord, he said. Hearing that a commitment from landlords is required is “very good news for us,” he said.

The landlord said she has made agreements with O’Neil and one other potential pot-store owner, and has room for them both to set up shop in her building. The three other applicants who used her address, she said, did so without her knowledge and without an agreement.

Some don’t see the purported tactics as shenanigans. That should be expected with a lottery system, said Alison Holcomb, author of the state’s legal-pot law.

“It’s not gaming the system. It’s playing the system. It’s a problem of the lottery,” said Holcomb, who prefers use of merit-based scoring to determine qualified applicants.

State officials have maintained they cannot do so. Merit-scoring is allowed in contracting, but state rules for licensing require only that applicants meet the threshold for qualification.

Spokesman Smith said the LCB hasn’t come up with details of how it will conduct a lottery yet.

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