WSLCB - Board Meeting
(January 22, 2020)

Here are some observations from the Wednesday January 22nd Washington State Liquor and Cannabis Board (WSLCB) Board Meeting.

My top 3 takeaways:

• The Board approved prospective changes to cannabis Quality Control rules, shifting the rulemaking project formerly known as “Quality Assurance Testing and Product Requirements” into its CR-102 phase.
  • Hoffman went through particulars of the proposed changes and supporting materials the day before at the January 21st Board Caucus. The rulemaking project began August 8th, 2018 pre-dating Hoffman’s tenure with the agency.
  • Quality Control (QC, WSR 18-17-041, audio - 10m, video). Hoffman touched on the history and purpose of the rulemaking project leading up to the CR-102, the next stage of WSLCB rulemaking during which the agency solicits and responds to stakeholder review of formally proposed rules. She stated, “This proposal would require that, by March of 2021, all marijuana produced, processed, and sold in Washington state be tested for pesticides and heavy metals in addition to the current I-502 suite of tests.” As the project started at WSLCB before she did, Hoffman began her work on the topic reviewing “over 50 comments” the agency had already received. She explained that her team had implemented a new listen and learn meeting format to better engage stakeholders or “any interested party.”
    • The first listen and learn session was hosted on April 9th of last year, where participants went through the CR-101 phase conceptual draft rules. Hoffman noted an outsized presence of cannabis laboratories compared to other licensees where “opinions and ideas” on changes "differed greatly.” Hoffman told Board Members Ollie Garrett and Russ Hauge, “we heard that this shift would impact both licensees and accredited labs” as well as consumers.
    • A second listen and learn forum was held August 22nd to “invite ideas on phase-in and mitigation strategies.” Hoffman added that this session saw more participation from cannabis licensees. Over 300 comments had been collected so far during the rulemaking project “as recently as Monday.” Comments from the listen and learn sessions were made accessible as a comment matrix.
  • Hoffman outlined the CR-102’s proposed changes, saying it would “incrementally phase-in mandatory pesticide testing by September 1st, 2020. Heavy metals testing would become mandatory by March 1st, 2021” with rules covering “all marijuana products.” The proposal also:
    • “Reaffirms existing protocols designed to reduce, where possible, product contamination during and after sample deduction.”
    • The revision “retains the five pound lot size for collection.”
    • “It updates, reorganizes, and streamlines rule language where appropriate to assure scientific accuracy.”
    • Lastly, allows for “terpene testing if terpenes are added to a product, and such an addition is claimed on labeling.”
  • Hoffman then described two substantial background documents she had composed to accompany the CR-102 and their relation to both the quality control rulemaking project and rulemaking in general.
    • A Significant Legislative Rule Analysis wasn’t required of the agency under the Administrative Procedures Act, “but given the nature of these revisions, our commitment to transparency, and wanting to be sure we memorialize our current thinking related to this proposal,” she opted to prepare one using statutory guidance in RCW 34.05.328.
    • A Small Business Economic Impact Statement (SBEIS) was put together by Industrial Economics through the Washington State Office for Regulatory Innovation and Assistance (ORIA). The report noted that “guidelines for preparing the SBEIS are included in RCW 19.85.040(3).” Hoffman emphasized that a preliminary SBEIS from Industrial Economics in April 2019 was created despite the fact that “in most circumstances an SBEIS is not completed until the actual rule proposal [CR-102] is prepared.” The preliminary SBEIS was used to “estimate the minor cost threshold as required by statute. This threshold helps us determine whether additional analysis is required.” Hoffman said that effort was complicated because “longitudinal data such as employment, revenue, and general costs are not established yet for this particular industry.” The preliminary SBEIS therefore had little relation to the CR-102’s cost estimates, she explained. Furthermore, Hoffman said a SBEIS differed from a cost/benefit analysis, another review system also outlined in RCW 34.05.328.
      • See ORIA’s information about the Significant Legislative Rule Making process and their past rules reports.
  • Hoffman admitted the proposal was "a significant shift in the requirements" but it would address a “general consumer assumption” that pesticide testing was required and align Washington with “California, Orgeon, and other states’ product testing standards.” Beyond that, the reforms would meet WSLCB’s mission regarding the promotion of “public health and trust.”
  • Hoffman said that if the Board moved to approve the proposal the agency would utilize the following timeline:
    • The CR-102 would be filed that day with the Office of the Code Reviser (OCR) which would publish notice of the change on February 19th.
    • The agency would host a public hearing on the CR-102 on March 18th, accepting feedback on the proposal until the close of business that day.
    • The final rules step would be Board adoption of the project’s changes via CR-103 on April 1st creating an effective date of May 1st and beginning the phase-in periods Hoffman projected for mandatory pesticides and heavy metals testing.
  • Hauge expected to hear “a lot of discussion about what this rule package should contain," to which Hoffman replied that the agency wasn’t barred from hosting additional listen and learn sessions or filing “a supplemental CR-102 if necessary.”
  • The Board approved the Quality Control CR-102.
• Changes to Cannabis Penalties were adopted by the Board, with new penalty structures and fines slated to take effect next month.
  • Hoffman had briefed the Board on the project’s final rulemaking action the day before during the board caucus. The CR-101 initiating the project was filed in November 2018 and the agency’s efforts became “guided and directed” by the trajectory of SB 5318 in the spring. Listen and learn sessions were held on September 26th and October 31st of last year. The agency most recently hosted a public hearing on the proposed rules on January 8th.
  • Cannabis Penalties (WSR 19-23-043, audio - 3m, video). Hoffman went through the rulemaking effort which included a large reorganization of the existing penalty matrix. The rules would:
    • Establish “a process for the issuance for the notice of corrections.”
    • “Reduces the cumulative effect of escalating penalties from three to two years” and “provides a deferral option.”
    • “Restructures existing penalty grids by establishing penalty categories based on violation severity and relationship to public health and safety.”
    • “Significantly reduces the number of violations that could result in license cancelation while balancing penalties across license types.” 
    • It re-incorporates “and associates statutory references with violation type. They reduce fines by 50% and in some cases more.”
    • Finally, changes “incorporate the mandates” of SB 5318.
  • Hoffman said that comments on the CR-102’s proposed rules from the Cannabis Alliance were supportive, while the Kitsap Public Health District submitted a call for “a return to a more stringent penalty structure and asked us to exceed statutorily defined penalties concerning allowing a minor to frequent a retail store.” No changes resulted from either comment.
  • Hoffman noted that a Rule Effectiveness Evaluation featured in the CR-103 memorandum described how the agency would track the impacts of the rule changes including:
    • Monitoring and cataloguing questions received after the effective date of these rules, and adjusting training and guidance accordingly;
    • Monitoring the number of enforcement actions, including type, resolution, and final outcome;
    • Monitoring the number of requests for rule language revisions or changes;
    • Monitoring licensee feedback, including but not limited to the number of requests for assistance, interpretation of rule, and other metrics as appropriate.
  • In accordance with the timeline set out in the Request for Approval of Final Rules, Hoffman stated that the CR-103 would be filed with OCR later in the day and take effect on February 22nd.
  • Having no questions, Garrett and Hauge voted to adopt the Cannabis Penalties CR-103.
• During general public comment, Micah Sherman of Thurston County-based tier 2 producer/processor Raven urged board members to lobby for HB 2279, a bill which would establish a framework for craft cannabis in Washington state.
  • Micah Sherman (audio - 3m, video). Sherman, co-founder of Raven, an Olympia-area cannabis producer/processor, last spoke before the Board on December 11th. He first thanked Hauge for emphasizing that the proposed QC rules could still be developed throughout an “open and flexible” CR-102 process.
  • Sherman then called attention to HB 2279 on “Improving the development of the marijuana market by enacting provisions specific to craft cannabis production.” Sherman worked to craft the bill with sponsoring Representative Lori Dolan. He said his discussions with lawmakers on HB 2279 had framed it “in relationship with the agency request legislation that, at this point, I haven't seen any progress in the legislature with those bills.” Sherman said that some lawmakers had conflated his craft cannabis legislation with a WSLCB request bill regarding medical cannabis/small producers. “They encouraged me to revisit my legislation as a result of, of what was being put forward by the agency. I found that was a barrier to having good conversations with those folks.” As Sherman believed that the agency’s request bill was “not going to progress I would really encourage you guys to reach out to the House Commerce and Gaming (COG) Committee and encourage them to support a public hearing” on his legislation.
    • On Thursday, WSLCB’s agency request THC vapor products bill was introduced in the House (HB 2826) and the Senate (SB 6579). At publication time, it appears the agency’s proposed medical cannabis/small producers bill and social equity program bill may have both been restricted from moving forward by the Governor’s office.
  • Despite “confusion about our bill versus what you guys were trying to accomplish,” Sherman was confident that HB 2279 would provide a “framework to build towards solutions” for agency goals “for small farms, and finding solutions to the significant lack of racial diversity and equity in the ownership of cannabis businesses,” as well as the state’s “flailing medical program.”
  • HB 2279 as originally written would have the following effects:
    • It would create a new “craft marijuana producer license” and “craft marijuana producer/processor license” where the license holder “may not hold any other marijuana license issued” by the state nor may they “have an ownership interest in, management role in, or exercise control over a business or entity that holds any other marijuana license.” Should it take effect, current licensees who meet the bill’s requirements would be able to transfer their license type “without paying an additional fee.”
      • The new bill sidesteps division and diversion about defining who is or is not “craft” or a “smaller producer” within the existing tiered production and processing supply chain. With HB 2279, if a licensee chooses to switch to a craft license type, they become a craft licensee.
    • The craft license application and renewal fees would be the same, except that “The board shall establish a reduced application fee and reduced license fee for a craft marijuana [producer or producer/processor] applicant or licensee, for social equity purposes, based on the applicant or licensee's race, creed, color, sex, national origin, sexual orientation, families with children status, honorably discharged veteran or military status, or based on any sensory, mental, or physical disability of the applicant or licensee.”
    • The privileges and requirements for craft licensees would be largely the same. However, craft production licensees would have blended canopy limits which allowed for combinations of production techniques while acknowledging and accounting for disparities in production capacity under the current tiered canopy regime.
      • “If production is indoors, the licensee may have no more than ten thousand square feet of production canopy;
      • If production is seasonal sun-grown production, the licensee may have no more than thirty thousand square feet of production canopy; and
      • If production is at a facility at which marijuana is cultivated by indoor production and seasonal sun-grown production, the licensee must have less than ten thousand square feet of indoor production canopy. Additionally, the licensee may have seasonal sun-grown production canopy equal to three times the difference between ten thousand square feet and the number of square feet of indoor production canopy authorized for the licensee.”
        • (10000 - INDOOR SQ FT) x 3 == OUTDOOR SQ FT
        • For example, 5000 Indoor + 15000 Outdoor
    • Following “rules adopted by the board by October 1, 2020, craft marijuana producers may make retail sales of useable marijuana to adults age twenty-one and over from the licensed production facility. Useable marijuana sold at retail must be produced entirely by the craft marijuana producer selling the useable marijuana.” Craft producer/processors would be permitted to “make retail sales of marijuana products produced and processed entirely by the craft marijuana producer/processor to adults age twenty-one and over from the licensed facility.” Sales would be subject to the same limits and taxes as retail stores.
    • “For purposes of local zoning and land use ordinances, retail sales of useable marijuana by a licensee under this section are considered ancillary to, and do not alter, the primary use of the property as an agricultural, industrial, or commercial use. A city, town, or county may not prohibit a craft marijuana producer from conducting retail sales of useable marijuana authorized under this section.
      • At publication time, it’s Cannabis Observer’s understanding that this local control provision of the bill had already begun to attract amendment.
    • In addition, the bill would have WSLCB “establish an advisory group of craft marijuana producers and processors who are licensed under section 1 or 2 of this act. The board shall solicit input from, and consult with, the advisory group when developing policies or rules related to the production and/or processing of marijuana.”
      • A craft licensee advisory group would have the staying power of legislative mandate in contrast to WSLCB advisory councils and work groups which convene at the discretion of the Board and agency. Cannabis Observer recently noted that the agency’s long-running Traceability Advisory Committee established in January 2017 had been quietly disbanded. And the briefly resuscitated Tribal Advisory Council was decommissioned in favor of a “better vehicle” for tribal engagement - a meeting format which appears to not be open to the public.
  • In an email to COG members that Sherman shared with Cannabis Observer, he argued that “This bill deserves to have a conversation in public. Many small farms that I discuss the bill with are intimidated to speak in support of it due to threats of retribution from some of the largest retail cannabis stores in the state who have made it clear they do not want this bill passed and will punish farmers and processors who speak out in favor of the legislation. These store owners have tremendous power to directly affect the lives of small farmers and are using the money made from that powerful position (which they are granted a limited and valuable license by the state to have) to ensure the bill does not receive the necessary support. I'm worried that these actions might keep this bill from being heard. Please, give us a chance to present our vision for a change to the industry...”
  • Sherman asked the Board for support as a “public conversation at this moment would be very helpful for our goals.” In addition to Dolan, the bill is co-sponsored by Representatives Sherry Appleton and Sharon Wylie and has been referred to COG but not yet added to the committee’s hearing calendar. All legislation will need to be heard and acted upon by its policy committee before the first house-of-origin cutoff deadline on February 7th.
  • Learn more about the bill at WashingtonCraftCannabis.org.