Subscribe to Entrepreneur for $5
Subscribe

How One Cannabis Chain Grew Despite Red Tape, Regulations, and a Massive Lawsuit

The Owners Just Roll With It: "We're still building. The turtle wins the race."

By
This story originally appeared on Marijuana Venture

At the Greenside Recreational flagship store in Des Moines, Washington, south of Seattle, business is booming.

The 3,500-square-foot store (which includes a glass shop) routinely ranks in the top five in the state in revenue, drawing customers from around the area with a highly trained and uniformed professional staff, large selection and competitive pricing.

The company’s second store opened in Seattle in 2016 and was often crowded, prompting a move to a larger location in the city where it is still seeing growth every month.

“We try and offer the best cannabis we can at the best price,” says owner Seth Simpson. “It’s just good customer service.”

The stores’ simple, clean lines help ensure an easy shopping experience and the staff, all of whom wear shirts with the store’s logo, are knowledgeable, trained to answer questions about the products from customers of all experience levels.

But even a success like the growing Greenside chain doesn’t always feel like a win, especially if the path was fraught with red tape, multiple battles over regulations and a massive lawsuit.

Fighting the big battles — and winning

Few people know that better than Simpson, who planned for this success to be in a much larger city, one about five times the size of Des Moines. But Simpson and his former business partner David Ahl were forced to take the city of Bellevue, Washington, to court over its regulations, winning a $3.4 million settlement. However, he ultimately lost his chance to open the store he’d planned for, paid for and even received a state license to open.

“I think we would have been one of the largest shops in the state,” he says. “We would have been the first shop in Bellevue open.”

Simpson’s company ultimately lost its license to open in Bellevue, just across Lake Washington from Seattle, because it could not find a new location, and though he has opened a pair of successful cannabis shops since, the possibilities still haunt him.

But Simpson says the lessons learned from his case are important for shop owners across the state of Washington and potentially throughout the country because he refused to accept what they told him when he knew it was not fair.

“Never back down, keep going,” he says.

“And don’t always take what the city tells you as gospel truth,” adds attorney Bryan Krislock of Davidson, Kilpatrick & Krislock, who worked on the case, adding that having a good attorney and understanding local regulations – not just cannabis, but land use and building codes – can make all the difference. “At the end of the day, in July 2014, the city just told them they were not allowed to open, and that’s just not true. City staff makes mistakes all the time. Knowing the law is really your friend.”

RELATED: The 10 Best States To Start A Cannabis Brand In Right Now

Planning for success

Simpson began planning Greenside’s success back in Washington’s medical days when Simpson and Ahl secured a location for a dispensary in November 2012, just after Washington voters approved adult-use but prior to regulations being written. The pair planned to open a dispensary at the space on Main Street with the goal of opening it as a retail shop when licenses were available. They made several upgrades to the building and applied to the city for a building permit in January 2013.

The city at the time claimed a dispensary would violate the city’s land use code and obtained injunctive relief prohibiting the shop from opening. Simpson and Ahl, however, extended the lease through 2016 with the goal of opening an adult-use store.

When the state Liquor and Control Board (now the Liquor and Cannabis Board) opened the application process for licensing lottery, Greensun was one of 19 groups that applied from Bellevue.

A few weeks after that, the city passed an ordinance adding a new restriction to their code preventing marijuana retailers from opening within 1,000 feet of each other.

In May, the LCB announced the winners of the four licenses available in Bellevue. Greensun ranked fifth, though one of the applicants ahead of them, High Society, used Greensun’s address on their application, meaning they did not actually have a location and would most likely be disqualified, making Greensun one of the city’s lottery winners.

“They never really had a claim to the property,” says Krislock.

A second lottery winner, however, had a location listed within 1,000 feet of Greensun’s, leading to a question of how the city would apply its buffer ordinance.

Greenside Recreational’s friendly, uniformed staff and clean, open lines have made the flagship store one of the highest-grossing in the state and led to a second location for the chain.

RELATED: 5 Things to Consider Before Investing in the Cannabis Market

Bureaucratic barricade

According to the lawsuit, the other company, Par 4, owners of the Green Theory retail chain, filed their building permit on May 16, 2014. Three days later, Simpson was told by the city the applicant who first submitted a completed building permit application would be given priority.

Simpson then reminded the city of accepted application from 2013. According to the lawsuit, the city told Simpson that the LCB would have to designate an applicant as a winner to establish priority. At the end of May, Greensun applied for a retail license, which was denied because city could only approve the four selected retailers.

On June 4, Bellevue received Par 4’s license application from the LCB and approved the Green Theory location on Main Street, which at the time was occupied by a snowboard store. On June 5, the LCB notified Greensun it was officially one of the four lottery winners due to the High Society disqualification. The city was notified June 9, however on June 11 it still notified High Society that Green Theory had “locked down” their location for the purpose of the 1,000-foot buffer.

Soon after, the city determined that they would not use the building permit application test, instead, according to the suit, tying it to “the first in-time determinations to when the LCB issued its licenses. The city did so without engaging in formal rule-making.” On June 24 it notified applicants that the city would use the date of issuance of a letter from the LCB acting as a temporary license, which would be issued after the LCB received a $1,000 payment from applicants.

On July 1, Greensun tendered payment to the LCB. But on July 2, High Society obtained a temporary restraining order preventing the LCB from accepting the payment. Par 4 paid its license fee July 3. On July 7 the first batch of licenses were issued. Par 4 received its approval letter via email at 9:17 a.m., however the letter is incorrectly dated July 3. The Par 4 attorney sent the letter to the city and the city replied that it was first for purposes of the buffer. At 1:08 p.m. the LCB issued the letter with the correct date.

While Greensun was not in the initial batch of licenses due to the restraining order, it was lifted on July 7 and Greensun received its approval letter at 3:08 p.m. At 4:19 that day Greensun received a message from the city indicating that the Par 4 application was dated July 3 and would take precedence.

Krislock and the Greensun team argued that both licenses should have technically been issued at the same time and noted that Greensun had passed a final inspection and was invoiced on July 1, prior to Par 4. The city again cited the July 3 letter in response.

“The city just doubled down on its rule,” Krislock says.

Green Theory opened in October of 2014. Greensun filed suit against the city in early November. In May 2015, a trial court sided with the city and dismissed the suit, but in June 2016, the Court of Appeals reversed the decision, invalidating the city rules because they were written without following proper procedure. In February 2017, Greensun added the damages to its case. In March 2019, the Court of Appeals remanded the case for trial. Bellevue appeals to the state Supreme Court, which declined to hear the case.

Soon after, in 2020, the city settled for $3.4 million. The amount includes attorney fees, must be split between Simpson and Ahl and taxes must be paid.

Hindsight

Krislock says the decisions show that cities cannot be arbitrary in their rulemaking and must enforce any rules equally instead of favoring any one company over another.

“You can’t deny someone a license if they’re entitled to it,” he says.

And for Simpson, the city’s enforcement sure felt personal in the way they kept changing the rules to favor the other store.

“They were playing favorites,” he says, adding that through the settlement the city does not accept fault, “You don’t pay out $3.4 million if you’re not at fault.”

Simpson says that he is pleased with the decision, but sometimes wishes he had taken the case to trial, where he is convinced they could have won up $15 million in damages, though he believes the city was trying to draw the case out to drain him of money so it would disappear.

“We would have settled out of court four years ago if they allowed us to open and they wouldn’t,” he says.

The city of Bellevue’s budget for 2021-22 is $1.7 billion. The city declined to comment.

But the anxiety of the lawsuit itself, which stretched on for more than six years through multiple courts before the settlement, ate at Simpson even as Greenside’s new flagship store grew to one of the largest of in the state, particularly because the case with Bellevue felt personal.

“This was probably one of the worst things I’ve ever been through,” he says. “There’s so much we could have done; we could have expanded our businesses faster.

“We just lost out on so much,” he says.

Today, Green Theory has also closed their shop on the block and the disputed location is now a pizza restaurant. And though Greensun has dissolved their partnership, Simpson continues to seek out new locations to expand his current, successful chain of Greenside stores.

“We’re still building,” Simpson says. “The turtle wins the race.”