WSLCB - Board Meeting
(April 14, 2021)

Here are some observations from the Wednesday April 14th Washington State Liquor and Cannabis Board (WSLCB) Board Meeting.

My top 3 takeaways:

• Policy and Rules staff gave an update on cannabis-related rulemaking and began looking at making the emergency rules on summary license suspension and petition for stay provisions permanent.
  • The last rulemaking update covered by Cannabis Observer was on March 30th.
  • Quality Control (QC) Testing and Product Requirements (audio - 1m, Rulemaking Project) 
    • Policy and Rules Manager Kathy Hoffman said the “responsive document regarding themes emerging from the supplemental CR-102 hearing last fall is now ready to go and we will be releasing it” via GovDelivery and the agency website by the end of the week. She reported staff continued “to explore where” WSLCB could “realign revisions within our statutory authority and with the traceability program redesigns.” Hoffman stated that no set timeline for completion of the project was finalized.
  • Tier 1 Expansion (audio - <1m, Rulemaking Project)
    • Hoffman stated that a survey report of tier 1 licensees was available and she expected to “bring a proposal to you by the end of the month.”
  • Criminal History (audio - 1m, Rulemaking Project)
    • Agency staff were preparing to discuss draft conceptual rules internally on Friday and “we’re on track for a listen and learn session the first week of May,” Hoffman said. She expected a CR-102 would be presented in “mid- to late-June...so that places finalization in mid-August.”
  • Emergency Rulemaking Update - Vitamin E Acetate (audio - 1m) 
    • Hoffman told the Board, “I will bring you a package to consider renewing the LCB vitamin E acetate emergency rules” at the April 28th board meeting. The emergency rulemaking banning the compound in cannabis vapor products included “the two [enforcement] rules associated with it concerning processors and retailers.” She added that the renewal was timed “to coincide with the finalization of the permanent cross-reference in our rules to the State Board of Health vitamin E acetate prohibition” and no comments on the CR-101 had been received so far.
    • The emergency rules were last renewed on January 6th.
  • HB 1210 Implementation (audio - 1m) 
    • If passed into law, HB 1210 would instruct WSLCB staff to change the term ‘marijuana’ to ‘cannabis’ throughout the agency’s sections of the Washington Administrative Code (WAC). Hoffman said her team was preparing to implement “an expedited process, or a CR-105” after agency representatives requested an amendment to that effect during the bill’s first public hearing.
      • On Saturday April 10th, HB 1210 was calendared in the Washington State Senate - but the bill did not receive its second and third reading prior to the opposite house cutoff on Sunday April 11th. However, at publication time, the bill was still considered active.
      • Chair David Postman expressed his interest in changing the terminology in agency rule during the April 13th Board Caucus (audio - 2m).
  • Summary License Suspension and Petition For Stay Provisions (audio - 3m) 
    • Policy and Rules Coordinator Audrey Vasek presented a CR-101 on potentially “permanent rules that would establish summary suspension and petition for stay provisions for enforcement of Governor’s proclamations.” The project would have staff consider “creating permanent rules to replace the emergency rules” serving that function, she said, indicating they’d last been renewed on March 17th. Agency staff would “consider potentially amending or repealing the existing” provisions in WAC 314 into “new rule sections applicable to all licensees,” Vasek said.
    • She explained that the emergency rules had been adopted by the Board in April 2020 due to the coronavirus pandemic restrictions. Vasek said Governor Jay Inslee had since issued “a series of amendments to these original proclamations in response to” changing conditions that impacted WSLCB and Inslee’s Healthy Washington–Roadmap to Recovery plan. She indicated that the emergency rules put in place by the Board had been extended multiple times and “at this point it's not possible to know precisely when the state of emergency as a result of COVID-19 will end. Permanent rulemaking provides the agency with the ability to use summary license suspension and petition for stay provisions” indefinitely and would “support efforts to preserve public health and safety both through the uncertain duration of the current state of emergency and through possible future states of emergency.”
    • With board approval, Vasek planned to file the CR-101 with the Washington State Office of the Code Reviser (OCR) and partner with communications staff to “send notice to all GovDelivery subscribers and update the LCB website” rulemaking page.
    • Postman expressed satisfaction with the proposal, calling it “important and responsive to some things we’ve heard.” While he understood a public attitude hoping that COVID-19 restrictions “end soon,” the proposed rule would “allow for quick action, consistency, and frankly more clarity between us,” licensees, and “the public as a whole” in the event that, “God forbid, we face it again” (audio - 1m).
    • Board Member Ollie Garrett moved to approve the CR-101, Postman agreed, and the measure was approved in Board Member Russ Hauge’s absence (audio - 1m).

• Washington cannabis producers and stakeholders shared their views on an urgent need for regulation of the use of cannabinoids created from hemp cannabidiol (CBD) in cannabis products, in particular derived delta-9-tetrahydrocannabinol (THC) and the isomer delta-8-THC.
  • Shawn DeNae Wagenseller, Washington Bud Company Co-Owner (audio - 4m) 
    • Wagenseller commented that she’d received a cannabis producer license in 2016 and served medical patients prior to that. She voiced concern over the announcement of WSLCB employees leaving and that their departures were “gonna set us back again.” Staff leaving roles at the agency included:
      • Deputy Director Megan Duffy
      • Chief Information Officer (CIO) Mary Mueller
      • Cannabis Policy and Rules Coordinator Casey Schaufler
    • “We’ve been talking about...rules and what’s important” for years in agency rulemaking and listening sessions, but Wagenseller found that “we’re still talking about the same things.” Issues that had yet to be resolved to her satisfaction included waste rules; enforcement of production canopy; tier sizes and privileges; “truth in advertising on” packaging and labeling (PAL); and non-crucial rules which "simply get in the way of business," she said.
    • Wagenseller pointed to delta-8-THC “coming into” the legal cannabis market as a topic meriting swift action by WSLCB. Following a presentation from University of Washington (UW) professor Nephi Stella on the “delta-8 coming from hemp issue,” what she “picked up from the discussion is that he concludes that delta-8, even though you can find it in naturally-grown cannabis, it’s not in any sort of viable volume to make it profitable to extract.” Wagenseller continued, stating that federal hemp legalization in 2018 had resulted in farmers not “growing hemp for fiber, fuel, and...industry, but for cannabinoid extraction.” Some cannabis industry “chemists have gotten ahead of the rules” by transforming hemp extracted CBD into “both delta-9 and delta-8-THC” as well as other cannabinoid isomers, she argued.
      • Check out Stella’s September 2019 presentation on cannabis research to lawmakers.
    • Wagenseller applauded the agency’s development of a draft policy statement which assessed that “until the agency has both authority and verifiable information on which to base its decision making regarding delta-8-THC or any other isomer of THC, regardless of the form of THC, the total THC amount cannot exceed that allowed per serving as specified in WAC 314-55-095.” She concluded that definitions of “naturally derived concentrations” were preferable and “chemical processing and synthesis should not be allowed."
  • Dave Varshock, BroCo LLC Chief Operations Officer (audio - 3m, written comments) 
    • Varshock told the Board that large processors were being allowed to sell synthetics and he was “pretty disappointed and concerned about the importation/sale of synthesized cannabinoids into our marketplace.” He remarked that the compounds lacked “adequate safeguards,” compromised consumer safety, and that the agency should “put an immediate stop to the importation, the manufacturing, and the sale of synthetic hemp derivatives” in Washington’s legal cannabis market. In Varshock’s estimation, “naturally extracted delta-9s just can’t compete” financially against synthetic cannabinoids, resulting in an “uneven playing field” for producers.
    • The viability of businesses were already being impacted “ahead of federal legalization” he noted, “and it’s coming.” Varshock recommended a “pilot program to allow retail title certificate holders to host farmers market-style event[s] this summer.” He said producers needed the chance to “serve our communities directly” and also supported “craft cannabis legislation, direct sales legislation” to help farmers, similar to the state winery model. Varshock felt regulators and lawmakers didn’t understand the difficulty cannabis producers had faced “just due to the unfair structure of the market.”
  • Monica Martinez, Owner of The Calyx Co. and Washington State Legislative Task Force on Social Equity in Cannabis (WA SECTF) appointee (audio - 3m) 
    • Martinez shared that she’d been in business since late 2014 and despite an investment from her father in hopes that the business would “get him retired...he’s still working in the fields six days a week.” She experienced a “downward slide” with prices decreasing since 2014 “until they evened out in 2019 with a slight increase at the end of that year and remained through 2020.” However, she said in 2021 she’d been “forced to adjust my prices back to the lowest we were at in 2018” having to lay off “all of our employees” except for her and her husband. To make matters worse, Martinez said her company was “still struggling to move our flower today” and continued to need access to banking, finding “no choice but to struggle to make it work.”
    • Some operators had “created direct competition with those in I[nitative]-502 as they are creating synthetic delta-9 and delta-8" and were “currently devastating our industry,” Martinez stated. Additionally, she said “over canopy in our industry” helped bad actors as “large producer/processors continue to consolidate.” This made consumer engagement through legal direct sales crucial to the future of small producers, Martinez reported.
    • Martinez requested that the Board quickly take “action on synthetic hemp derivatives, over canopy, and please be a supporter of craft cannabis.”
  • Jason Poll, Gorge Gold CEO (audio - 1m)
  • Jessica Straight, Eagle Trees Co-Owner (audio - 4m) 
    • Straight described how she and her brother operated a small farm that grew cannabis with natural light and no “pesticides, fungicides, or any kind of chemicals,” instead utilizing “regenerative farming practices.” She believed she had "the model farm that you’d want the cannabis industry to be" including independence and fair treatment of their employees.
    • The state’s cannabis market was “really difficult,” Straight said, and the decision “allowing CBD to come in from...other means was really crippling to us.” Her business had focused on providing cannabis with high levels of CBD until extracts and plant material “was allowed to come in, you know, outside of 502.” Producers could only sell their crop to retailers “and those shops are limited, so there’s a bottleneck there” she said. Yet, “these shops are allowed to sell outside hemp-derived CBD, now outside hemp-derived delta-8/delta-9.”
    • Straight agreed with others that producers deserved to “sell our cannabis to our consumers” who enjoyed their brand. Moreover, she said that growers like herself couldn’t charge “the price of producing our cannabis plus, maybe, 10% profit” due to stiff market competition.
    • “If Washington wants to continue with a cannabis industry that enables small independent farmers to thrive, the craft cannabis bill really needs to be taken up,” Straight told the Board. Otherwise, the state would only have “large corporate cannabis businesses that don’t care about the environment, they don’t care about their workers, they don’t care about anything but profit.”
    • Straight said her business’s location in Whatcom County coupled with being an outdoor grower meant “we only are able to do one harvest” compared with indoor growers who could get up to six harvests a year. As regulations treated indoor and outdoor production the same, she said it was “not a level playing field for us.”
      • On April 6th, the Whatcom County Council considered a moratorium on expansion of outdoor cannabis cultivation.
  • Micah Sherman, Raven Co-Owner (audio - 4m) 
    • Sherman confirmed that synthetic cannabinoids were already found in the I-502 market with “profound effects" and that the Board had “to take action on it as quickly as possible.” He asserted there was “synthetic delta-9 being sold” in the legal cannabis sector “right now.” Even though Sherman understood that was “not allowed, yet it’s happening,” impacting licensees’ ability to “even just get by like we have been over the last few years.”
    • Noting he was the author of the latest craft cannabis bill, HB 1260, Sherman commented that he’d lobbied for “the last five years to move that bill forward” as I-502 began looking less and less like the state’s craft brewing industry and support for cannabis farmers waned. He felt producers worked just as hard for shrinking rewards while the government and other licensees benefited from increased revenue. 
    • Sherman called for support from state officials for cannabis farmers so they could reasonably compete in “a national marketplace” that was “farmer-focused...on quality production methods.” This could take the form of “a formal relationship between” lawmakers and licensed producers through the craft cannabis council in the bill, he argued. He believed this could help create “compelling policy” that supported producers going forward. Sherman asked that in the 2022 legislative session agency leadership support his craft cannabis bill, saying he was already working to see that it aligned with WA SECTF interests as the bill would “be the thing that we need to solve these problems.”
  • Rian Takahashi, United Western Green LLC (audio - 3m) 
    • Takahashi said that synthetic cannabinoids had impacted his farm’s sales to licensed producers, as companies were “going down to Oregon, buying kilos and kilos of CBD isolate” and bringing it to Washington where they can use an “acidic wash to convert that into delta-9.” I-502 producers were finding their cannabis extract couldn’t compete with this process, he remarked. Cannabis trim that had sold for 30 cents per gram now barely moved at eight or ten cents per gram, he explained.
    • Takahashi urged agency action as growers who were “following the rules are going to be punished in the long run.” He predicted a “huge trickle down effect this coming up summer if it’s not stopped,” suspecting “30% of farms” could close.
  • Crystal Oliver, Washington SunGrowers Industry Association (WSIA) Executive Director (audio - 3m) 
    • Oliver noted that WSIA had many members that were “the original holders of their licenses and they’ve managed to navigate this extremely volatile marketplace while complying with state law and regulation.” She had seen the challenges producers faced “with COVID-19 closures, protocols, and increased expenses” over the past year, and circumstances had been “exasperated by the importation and manufacturing of synthetic delta-8 and synthetic delta-9-THC” for sale in retail stores “without any disclosure to our consumers.”
    • Oliver shared her fear that the situation would become a “small farm extinction event" without direct action by WSLCB. She added that farmers who had focused on “bulk wholesale flower for extraction purposes” would face damage from “unfair competition” and requested an end “to the importation, manufacturing, and sale of synthetic cannabinoids in the I-502 system.” She contrasted the “closed system” where licensed producers could only sell to in-state processors or retailers, yet those license types could “buy product, now, from out of state and bring that in” to the legal cannabis system. Oliver pushed for regulatory help for farmers in “a very dire situation.”
    • Craft cannabis legislation and direct sales to consumers were also WSIA priorities, Oliver stated. She asked the Board to “support legislation to make that a reality.”
  • Jeremy Moberg, CannaSol Farms Owner and WSIA Board Member (audio - 4m) 
    • Washington "farmers are in absolute dire straits,” Moberg told the Board, “and it's amazing to me how quickly it happened.” He believed that the agency had stumbled into "a technical issue" which had “mired the ability of the LCB to take the action that it clearly can take and needs to take.”
    • Moberg concurred with previous comments that delta-8-THC was "not a naturally occurring substance" and “currently under rule synthetics are not allowed.” He then argued that delta-9-THC could now be “created” by processors “at a very, very cheap price, and it’s illegal.” Moberg said it was “easy to be able to tell who these processors are" and suggested WSLCB “needs to take enforcement action immediately.”
    • Importation of synthesized delta-9-THC was a federal crime, Moberg asserted, and left unenforced, would put the state’s legal cannabis sector at risk of federal prosecution, in addition to already “killing farmers.” Moreover, he had concerns about agency staff “not enforcing canopy” limits and that large producers “massively over canopy” were putting producers following the rules at a “competitive disadvantage.”
  • Jim MacRae, Straight Line Analytics (audio - 4m, written comments) 
  • Individuals who signed up to comment but were unavailable to speak:
    • Sabina Boehm, Glass By Sabina Owner
    • Casey Davidson 
    • Brandon Fenton 
    • Colin Lukey, Yield Farms Owner and Cannabis Farmers Council (CFC) Board Member
    • Jeff Merryman, IGrow Owner/CFC Board Member

• Board Chair David Postman took a few minutes to respond to the concerns expressed around delta-8-THC and his desire for the agency to stay ahead of cannabinoid chemistry innovations (audio - 5m).
  • Postman informed the public that he and staff had taken notes and listened closely to the concerns conveyed but he wanted to respond to the topic of delta-8-THC. He said there was little disagreement “about the need to regulate” the cannabinoid and believed “we have the authority” to act on the compound’s presence in the legal market. “What I don’t believe we have is the facts we need to do emergency rulemaking,” he said, concerned such an action could be “instantly challenged and we could push ourselves back.”
  • Postman said the agency was moving “fairly rapidly” towards a regular rulemaking process as well as looking into “a statutory change for the next legislative session.” He recognized the pressure farmers were experiencing and promised WSLCB would “move on delta-8 as, as quickly as we can in a….secure way.” Postman wanted a policy that was defensible to both the industry and the courts, but was confident that should the agency need a greater grant of authority “we will get that.”
  • The issue of delta-8-THC in the market had been sudden, Postman added, but he found it was important to “find a system that won’t require us all to have this conversation about the next” prominent cannabinoid. After moving to control delta-8-THC, Postman wanted “a regulatory scheme that allows us to be forward thinking, dynamic, and frankly, as innovative as the chemists are, and that’s difficult." He was aware of disagreement over the viability of emergency rules but agency leadership felt “pretty confident about where we are on that at this point” and were continuing development of a policy statement on delta-8-THC.
  • Postman expressed an appreciation for the interest in craft cannabis legislation and asked that Sherman reach out to him after the legislative session so that he could learn more about the proposal. As far as turnover at WSLCB, he asked people not to “worry about that,” saying that while he was new to the Board himself, “that certainly isn’t going to slow anything down.” Postman wasn’t aware of “anything at all that would lead me to think that slows any of the issues down that we’re talking about.”