WSLCB - Special Board Caucus
(July 22, 2021)

Here are some observations from the Thursday July 22nd Washington State Liquor and Cannabis Board (WSLCB) Special Board Caucus.

My top 3 takeaways:

• Board members spent the months preceding the special board caucus learning about the process of chemically converting hemp-derived cannabidiol (CBD) into other cannabinoids for use in legal cannabis products, unclear whether statute and rule allowed the process.
  • 2018 legislation, HB 2334, authorized the use of CBD sourced from outside the 502 regulated market as an additive in cannabis products for the purpose of enhancing their CBD content. Find out more about the law’s development:
    • Washington State House of Representatives (WA House)
      • Policy committee public hearing and executive session
      • Fiscal committee public hearing and executive session
      • Second and third reading
    • Washington State Senate (WA Senate)
      • Fiscal committee public hearing and executive session
      • Second and third reading
    • Washington State Office of the Governor
      • Bill signing
    • The law was subsequently implemented in a WSLCB rulemaking project.
  • In April 2021, some cannabis licensees publicly voiced concerns over the safety and legality of utilizing delta-8-tetrahydrocannabinol (delta-8-THC) and delta-9-THC synthesized from CBD extract in commercial cannabis products. Within weeks, the board was discussing the topic and Board Member Russ Hauge took a lead role in learning about the practice.
    • CannaSol Farms Owner Jeremy Moberg reported that he’d brought up synthesized cannabinoids with WSLCB staff in November 2020.
  • Agency staff announced a policy statement on delta-8-THC and other cannabinoids on April 28th, followed by a clarifying bulletin on May 3rd. 
  • A rulemaking project on “THC Compounds other than Delta-9” was opened by board members on May 12th, but refiled on July 7th so the project’s scope could encompass synthesized delta-9-THC.
  • On May 26th, members heard testimony by Marcus Charles of clēēn:tech who said they “license hemp-sourced THC technology to regulated cannabis license holders” and asserted their company’s “licensed process is sound, product is safe, and we would be pleased to share lab results.”
  • On June 3rd, WSLCB staff facilitated a deliberative dialogue between the public and a group of experts on cannabis plant chemistry largely focused on the conversion of CBD into delta-8-THC, with one panelist observing that the conversion to delta-9-THC was more difficult chemistry. Board members continued to learn about delta-8-THC policies in other states, and sought legal opinion on the status of the compound.
  • Hauge brought the issue back to his colleagues with urgency on June 16th, saying he’d seen credible evidence a processor licensed by WSLCB was changing CBD into delta-9-THC and selling it to the public. He engaged in an at times tense exchange with Director Rick Garza. Since then, board members had been reviewing their options for a policy position on synthesized cannabinoids and tried to avoid involvement in an active investigation into the practice by the WSLCB Education and Enforcement division in the weeks before the special caucus.
    • On July 7th, Kent Haehl, a representative from licensed processor Unicorn Brands, publicly affirmed that the company had engaged in cannabinoid synthesis to make as much as “200 liters of distilled oil per month.”
    • A second deliberative dialogue on the subject was hosted by agency officials on July 20th where Haehl and another Unicorn Brands employee, Blade Bolden, again asked questions and shared their perspectives on the topic.

• Staff introduced a new interpretive statement which addressed the legality of manufacturing delta-9-THC.
  • Board Chair David Postman introduced the presentation of the statement on “Allowable Practices for a Holder of a Marijuana Processor License” as the most appropriate “way for the agency to advise the public of its current opinions, approaches, and likely courses of action” (audio - 1m, video).
  • Garza thanked those involved in developing the statement (audio - 1m, video):
    • Justin Nordhorn, Director of Policy and External Affairs
    • Kathy Hoffman, Policy and Rules Manager
    • Chandra Brady, Director of Education and Enforcement
    • Kendra Hodgson, Cannabis Examiner Manager
    • Bruce Turcott, Senior Counsel for the agency from the Washington State Office of the Attorney General (WA OAG)
    • Garza also thanked “the individual board members for showing patience through this process.”
  • Nordhorn said the interpretive statement was a response to the June 16th Special Board Caucus, noting “the agency has received numerous comments and various feedback” about the “controversial” issue of “the creation of delta-9-THC from CBD.” He described staff undertaking a “deeper dive into the issues associated with the legality of production in this manner” which included review of “the statutory language, beginning from the foundations of producing a controlled substance.” After analyzing definitions in law, agency officials “found a clear understanding of how these issues relate to licensed processors, specifically” (audio - 4m, video).
    • Nordhorn highlighted “safe harbor provisions in RCW 69.50.363” pertaining to cannabis processors, saying the statute offered “protections against prosecution if people are working in compliance with the exceptions provided in state statute.” He stated that manufacturing controlled substances like delta-9-THC was illegal, “except for when you’re licensed and you’re following the privileges” in the law. Nordhorn explained that WSLCB staff focused “on those exceptions to...figure out what the legal production, processing, and sales look like in final detail.” They found that each license type “allows for specific activities” and the license holder was “protected from prosecution under those safe harbor provisions.”
    • Nordhorn said staff determined processors licensed by WSLCB were “not afforded safe harbor for the activities of creating delta-9-THC.” Only licensed producers “may grow cannabis for that purpose,” he remarked, adding “processors are allowed to purchase delta-9-THC from a licensed producer, but not create their own.”
      • As the interpretive statement puts it, “producer and researcher licenses allow for the production of “marijuana” products exceeding 0.3 percent THC concentration...The statutes do not authorize a licensed processor to source hemp based product, such as legal CBD, and convert it to delta-9 THC, regardless of the method of production, nor are they licensed to process hemp into marijuana concentrates...As “conversion” activity is not an identified privilege, it would not fall under the safe harbor protections.”
      • It also says RCW 69.50.326 did not “address or affirmatively authorize the use of other isomers or derivatives of marijuana as additives to marijuana and marijuana products, nor does it authorize LCB licensed processors to process other isomers or derivatives from hemp...Under a well-established rule of statutory construction, expressio unius est exclusio alterius, where a statute specifically designates certain things, there is an inference that the legislature intended to omit others not mentioned...For the purpose of analyzing whether there is a controlled substances act violation, it does not matter if the CBD product is added to a legal marijuana product and then converted to delta-9 THC or if it is directly converted to delta-9 THC into a finished product or additive.”
    • Norhorn relayed that he’d already spoken with each board member directly to get “some feedback” and had been able to “address some issues,” resulting in “a very sound analysis.” He doubted “everybody will probably agree with this in the industry, however, this is a very...substantial legal analysis” and represented the “appropriate and objective path forward.” Notification of licensees would occur through GovDelivery and include “additional information, potentially, through the other divisions on how they may operationalize this.” 
  • Brady told board members her staff was “working behind the scenes" to share the interpretive statement with licensees “and our officers,” with an “educate-first perspective so we can help people get on the path to compliance.” Enforcement officers could conduct “basic education, we can use administrative holds, warnings, notice to correct,” she said, or “enforcement action” for those refusing to comply (audio - 1m, video). 
  • Nordhorn mentioned the focus on processor privileges in the interpretive statement but called attention to retail licensees who were “only legally able to purchase product that was legally produced in Washington.” Retail owners aware of processors selling items made from synthesized cannabinoids “shouldn’t be buying that product,” Norhorn concluded, conceding it “didn’t get fully explained in the analysis.” He expected “dialogue” on the topic would continue, as would a THC rulemaking project, and likely “legislative requests” (audio - 1m, video).

• Board Chair David Postman and Board Member Ollie Garrett had several questions about the statement, while Board Member Russ Hauge attended without remark.
  • Postman wanted to know if the law could be interpreted to permit licensed producers to create synthesized cannabinoids, or if there was “no way that a licensee in Washington state can convert hemp into delta-9.” Norhorn responded that privileges for producers “really seem to focus around the growing aspect of the cannabis plant for the purpose of ‘marijuana.’” He said the focus of the interpretive statement was on “processor activity” (audio - 1m, video). 
  • Garrett wondered if a licensed processor “knowingly has done this, is doing this, we’re going to just start out with educating them?” Brady cited a distinction “between the folks that are on the path to compliance and folks that are specifically choosing not to comply with the rules and laws.” Her division would publish “a document within the next week that is gonna make clear Enforcement’s approach to this topic” (audio - 1m, video).
  • Postman asked if the interpretation would restrict anyone trying “to go from hemp to delta-9” regardless of “whether you call it synthetic, or transform, or convert, or anything else, there is no safe harbor.” Nordhorn affirmed that view, saying statutes discuss “activities that are afforded” and were “very similar to the alcohol laws, post-prohibition.” He concluded that staff had found nothing in law “that appears to allow that particular practice,” and nothing to suggest processors were permitted “to create delta-9” (audio - 2m, video). 
  • Postman then inquired as to the “investigation underway related to this issue” and if the statement could “in any way impact that.” Nordhorn made clear that “this has nothing to do with an investigation” as the interpretive statement was a response to “issues raised” that warranted clarification as to “what the law states.” He stressed that the document didn’t represent any change in law but answered to “differing opinions about this.” The “policy shop” overseen by Nordhorn was tasked with “providing clarity” on policy questions faced by agency leaders “and that’s what facilitated this” (audio - 1m, video). 
  • Postman asked if the statement would reach “every licensee, not just processors,” which Garza confirmed (audio - <1m, video).
    • Nordhorn added that agency officials planned to be clear with processors that “they may not sell or purchase any THC product not legally produced by a licensed marijuana producer.” Meaning, they could not sell to other processors “for further integration into other products” (audio - 1m, video). 
  • Garza addressed the next steps regulators would be taking, saying Director of Communications Brian Smith would distribute an announcement to stakeholders “today,” followed by a communication from Education and Enforcement staff “to licensees to help them understand what this means.” He concurred that this would be independent of investigations into “specific, other licensees” while conveying the position of WSLCB leadership on “synthetic delta-9” (audio - 1m, video). 
  • Postman thanked Nordhorn’s team for their work even as “we have rulemaking going on, we’ve talked about legislation for the 2022 session” and other potential activities by agency staff. He assured the public the board would “be vigilant” in regulating synthesized cannabinoids going forward (audio - 1m, video).