WA Senate WM - Committee Meeting
(January 18, 2021)

Here are some observations from the Monday January 18th Washington State Senate Ways and Means Committee (WA Senate WM) meeting.

My top 3 takeaways:

• Legislation lifting the state’s cannabis excise tax for medical patients was heard by committee members, starting with a staff briefing and remarks from the bill sponsor.
  • Alia Kennedy, WA Senate WM Revenue Counsel (audio - 2m, video). Kennedy briefed the committee on SB 5004 - "Providing a tax exemption for medical marijuana patients." She said the legislation “provides a tax exemption to medical marijuana patients” who registered with the Washington State Department of Health (DOH). Patients were already exempt from paying state and local sales taxes “on qualifying purchases,” but still paid the State’s 37% excise tax on cannabis products.
    • In addition, Kennedy told lawmakers SB 5004 required cannabis retailers to “maintain certain data on tax-exempt sales and provide that information” to the Washington State Liquor and Cannabis Board (WSLCB).
    • Kennedy highlighted the proposal’s fiscal note which included projections by WSLCB staff of reduced dedicated marijuana account revenue “by about seven and a half million dollars this biennium, and $10 million in the next.” However, WSLCB staff admitted that “the true revenue impact is indeterminate because the board does not know which tax exempt sales are for qualified medical marijuana patients and which are tax exempt purchases of the low...[tetrahydrocannabinol] THC products that are exempt to all consumers.” Additionally there were expenditures of $22,000 for the current biennium and $44,000 “each biennium thereafter for LCB enforcement costs.”
    • Senator Karen Keiser, the bill’s sponsor, asked about CBD products “claiming medical benefits” that weren’t sold in the legal cannabis market, and whether such products carried the 37% excise tax (audio - 1m, video).
    • The Washington State Joint Legislative Audit and Review Committee (JLARC) undertook a tax preference review of medical cannabis tax exemptions in 2021 after publishing proposed study questions in December 2020. The Cannabis Alliance and Washington CannaBusiness Association (WACA) were asked to survey their members to gauge how existing exemptions were applied. See WACA’s retailer questionnaire.
  • Keiser introduced the bill as its primary sponsor. She said, “fewer and fewer medical marijuana patients are able to find the products, the low-THC products” which had little “psychoactive impact” but still had “medical impact.” She explained to her colleagues that SB 5004 was limited to “DOH certified products that currently are available in small numbers at our licensed retail stores” with medical cannabis endorsements. However, she noted “patients tell me that they can’t find many products in the stores because there’s not much traffic.” Keiser then said the merging of the recreational and medical markets by SB 5052 in 2015 had left “the medical marijuana marketplace really limited” and she was hearing that patients had been “developing a gray market of their own" to find cultivars and products “that are not regulated or taxed at all” (audio - 2m, video).
    • Keiser first mentioned her intent to sponsor this legislation during a Washington State Senate Labor and Commerce Committee (WA Senate LBRC) work session in November 2020. WA Senate LBRC was renamed the Washington State Senate Labor, Commerce, and Tribal Affairs Committee (WA Senate LCTA) at the start of the 2021 legislative session.

• Almost all testimony urged passage of the measure as a way to help patients and push the industry to expand and innovate production of compliant products.
  • Lara Kaminsky, The Cannabis Alliance Government Affairs Liaison (audio - 2m, video). Kaminsky backed the bill as her organization had conducted surveys of patients showing “49% of them are staying out of the regulated market entirely because it does not service their needs.”
    • Kaminsky said the top reasons patients claimed for shopping outside the 502 system included:
      • “Cost”
      • “Fear of inadequate testing”
      • “Lack of appropriate products in the store”
    • Kaminsky noted that DOH compliant products were “the only highly-tested products that meet the concern patients have regarding quality” however there was “a lack of these products in the market.” She indicated that WSLCB was “delayed in their effort to mandate pesticide and heavy metal testing, leaving patients wondering how they can access safe medicine.”
    • The cost of compliant products with the excise tax put them “far outside the range of chronically ill patients who are disproportionately poor,” Kaminsky said. Removal of the excise tax would “go a long way to address the top reason patients are staying out of the market.”
    • Kaminsky said the fiscal note attached to the bill just after midnight that morning was “incorrect.” She asserted WSLCB staff made the same “incorrect” judgement on prior legislation, SB 5234: “LCB is interpreting the tax break as being applicable to all cannabis products in the store.” Instead, Kaminsky said “the fiscal note needs to reflect that the language of the bill specifically says the excise tax waiver is only DOH compliant product as defined” in statute. In 2019, Kaminsky said “there was $127,000 worth of DOH compliant product in the system” and potential revenue to the State from excise tax collected on “only the product correctly identified” would have amounted to $47,000.
      • Keiser asked Kaminsky whether excise tax was collected on CBD items sold outside the 502 market. Kaminsky confirmed there was not (audio - <1m, video).
  • Lukas Barfield, Patient representative on the WSLCB Cannabis Advisory Council (CAC) and member of the Tacoma Area Commission on Disabilities  (audio - 2m, video, written comments). Barfield, who had previously shared concerns about the patient market with both lawmakers and the CAC, talked first about “who medical cannabis patients are” who suffer a “formidable list of conditions.”
    • Barfield identified the chief beneficiaries of SB 5004 as persons with disabilities who had not registered with WA DOH “because it’s actually really hard to get a registration” as many healthcare providers were wary of providing authorizations needed to register. Barfield understood “there’s only one in the area of Tacoma that will give them.”
    • Turning to “pocketbook” concerns, Barfield explained that he cultivated his own cannabis as well as buying from retail stores even though he was “excluded from buying high-quality cannabis because I can’t afford it.” Due to excise taxation, his medical purchases were “in the low range of cannabis and it's not always the kind of cannabis that I need.”
    • A disabled friend of Barfield’s had been procuring cannabis “on the underground market for many years” under the impression it was “safer and better” than what was available in stores - “and lower cost.” He summarized the bill as being an “equitable access issue": patients capable of employment could secure “high quality, high grade cannabis” from retailers, and disabled or low-income patients “should be able to afford it too.”
  • Danielle Rosellison, Trail Blazin’ Productions Co-Founder/CEO (audio - 3m, video). Rosellison said she was owner of a tier 2 “women-owned” cannabis farm where “100% of our upper management employees are minorities.” She reported that all of her company’s products had “been DOH certified as medical marijuana since the beginning of 2017.” Rosellison said only one other company, Fairwinds, registered “the majority or all of their product.”
    • Rosellison commented that “it’s expensive to grow medical cannabis and it’s expensive to test medical products...up to $200,000 annually for the increased testing costs.”
    • As there had been “no education behind the Department of Health program...we’re not seeing the demand for” compliant products, she told the committee. Some retailers “will just give anyone who says they’re a patient that 10% [sales tax] off” which meant patients often bought “whatever’s suggested.” There was “confusion” around what was compliant, so growers and processors “cannot get a higher price point” when supplying medical cannabis to endorsed retailers. Rosellison explained this led to a poor “return on investment” which did not motivate other licensees to serve the patient market.
    • Rosellison believed the legislation could promote greater understanding by retailers of “what DOH products are and that more patients and veterans in need will ask for DOH products.” She hoped more licensees would start “certifying their products as medical.”
  • Ezra Eickmeyer, Producers Northwest (audio - 2m, video). Eickmeyer said the excise tax “never should have been” enacted for patients and that it was “urgent” the legislature approve the bill.
    • Eickmeyer had been approached by ill family and friends seeking medical cannabis outside the 502 market, and acknowledged that producing medical quality products was “an expensive venture” even before the excise tax was levied. He added that he’d opposed the imposition of the tax when the medical and recreational systems were merged in 2015.
    • In consulting with businesses, Eickmeyer was convinced that they would “not invest in developing next generation medical cannabis products” as there simply was no “market for it with this tax attached.” He viewed the potential economic development resulting from adoption of SB 5004 as substantial enough to lead to medical products becoming “potentially bigger than the current recreational market.”
    • WA Senate WM Chair Christine Rolfes asked about the “potential for revenue to the state to be switching from recreational to medical” once patients see “a clear benefit” to registering and foregoing the unlicensed medical market (audio - 1m, video).
  • Jeffrey Wilhoit (audio - 3m, video). Wilhoit was in favor of the bill and offered a “little change” to the language that he said would “support patients.”
    • Noting medical items “that require a doctor’s prescription or order” were “exempt from excise and sales tax” in the state - medical cannabis was an exception. Wilhoit said the bill would bring “parity” with other medical items and assist patients who “are already struggling to pay their bills.”
    • He testified that the exempt products described in section (1)(2)(a) of the bill weren’t expansive enough as most cannabis products would remain “not eligible for the exemption.” Wilhoit explained many cannabis items which succeed at “relieving” patient symptoms “would not qualify” for a discount under the bill. He urged the tax break be expanded to encompass all legal cannabis products.

• A single voice noted their youth access concerns would be raised if cannabis was made more affordable for anyone, and several people signed in on the bill but did not testify.
  • Seth Dawson, Washington Association for Substance Abuse and Violence Prevention (WASAVP) Lobbyist (audio - 1m, video). Dawson said he had taken the position of “other” on the bill “because we only wanted to relay one consideration”: “generally speaking the higher the cost of an alcohol or marijuana item the less youth access there will be.” He believed lower cost typically meant “greater access” by minors to “the product in question.” Dawson said WASAVP was appreciative of Keiser’s efforts to “narrow the impact of the bill.”
  • Rolfes acknowledged those who had signed in but not testified. She said four individuals registered their support for the bill, while one other person signed in as “Other” (audio - <1m, video).
    • Pro:
      • Vicki Christophersen, WACA Executive Director
      • John Kingsbury, Patients United (written comments)
      • Bryan McConaughy, Washington SunGrowers Industry Association (WSIA) Lobbyist
      • ?
    • Other:
      • Joanna Monroe, Craft Cannabis Coalition (CCC) Executive Director