WSLCB - Board Caucus
(January 21, 2020)

Here are some observations from the Tuesday January 21st Washington State Liquor and Cannabis Board (WSLCB) Board Caucus.

My top 3 takeaways:

• Policy and Rules Coordinator Kathy Hoffman provided a rulemaking update which focused on the cannabis penalties and quality assurance testing projects poised to be advanced at Wednesday’s board meeting.
  • Hoffman’s most recent rulemaking update covered by Cannabis Observer was on January 7th.
  • Cannabis Penalties (WSR 19-23-043, audio - 5m). Hoffman reported that she was prepared for “moving forward with the CR-103,” the agency’s final rulemaking step, at the following day’s Board Meeting.
    • She told board members her office had received two additional comments, one from the Cannabis Alliance in support of the penalty reforms, and another from a “public health entity in eastern Washington.” Hoffman couldn’t recall the latter group’s name, but knew they asked for changes in “category VI, our statutory violations” to increase fines. Hoffman noted “we can’t, the fines are listed in statute [RCW 69.50.369(10)(a)(ii)]” but relayed that the overall comment was for a more “stringent structure.” She added that the eastern Washington public health entity also asked for stronger penalties for category I violations, which were already at the maximum $1,000 penalty, and no changes to advertising rules, “especially when it comes to minors.”
      • Category VI offenses were connected to the current Group 2 regulatory violations in WAC 314-55-525 by Hoffman during an October 2019 listen and learn session.
    • Board Member Russ Hauge asked whether Hoffman had seen comments from the Washington Association of Sheriffs and Police Chiefs (WASPC). She said she hadn’t, to which Hauge expressed concerns that the organization would “come in at the last minute and make some noise.” Board Chair Jane Rushford and Hauge agreed they’d sometimes heard from the law enforcement leaders “after the fact,” with Hauge’s view being that “for several years they’ve been primarily in a defensive posture, kind of just daring anybody to pass something they don’t like.”
      • Though not testifying, WASPC’s Policy Director James McMahan signed in to support HB 2375 “Concerning tableting and encapsulating machines and controlled substance imitation materials” during a House Public Safety Committee hearing on January 20th.
    • Hauge communicated his skepticism “as a former law enforcement official” as to whether variation in fines “$100 this way or $500 that way really has much effect on behavior, deterrence.” While monetary punishments have “a place in regulatory regimes like criminal justice” in his estimation, most businesses “aren’t planning to violate” with fines therefore having uncertain deterrence value. “And second,” Hauge continued,” if they are trying to scam us what they’re thinking about is whether they’re going to get caught, not how much the penalty is going to be.” In all, Hauge was “much more comfortable” with the proposed rules as they reflected “what our mission should be.” Rushford readily concurred with Hauge’s remarks, as “the higher penalties do not ensure compliance” as much as WSLCB’s “education and collaboration with licensees.” Hoffman chimed in to say that “as we see public health become more involved in these rule development projects” she anticipated a push for improved education.
  • Quality Control (WSR 18-17-041, audio – 11m). Hoffman said she’d be bringing forward a CR-102 at the next day’s board meeting, a step which formally submits the agency’s proposed changes for what was formerly called the “Quality Assurance (QA) Testing and Product Requirements” rulemaking project. The changes would phase in pesticide and heavy metal testing requirements for all cannabis products in “a little over a year’s period of time.”
    • The rules package included a Small Business Economic Impact Statement (SBEIS) that was “a little different” than the SBEIS for vapor products from the prior year. Hoffman said the project offered an educational opportunity for the industry and stakeholders “about what a SBEIS is designed to do”: measure a “threshold of impact” in regulatory changes based on the best available data. A SBEIS was not a strict “cost/benefit analysis” with an “exact number.” Hoffman noted that a preliminary SBEIS from April of 2019 had led to confusion among stakeholders by “not really seeing it in the light in which it was offered.” She said the new SBEIS used preliminary information “as a frame and then updated our numbers” and was “able raise the threshold” aboved what was required under the state’s Regulatory Fairness Act (RFA). Hoffman quoted RFA as stating “‘anything over $100 requires further analysis,’ and this raises the bar even higher than that.”
    • The rule draft’s Significant Legislative Rule Analysis hadn’t been required, but Hoffman completed it due to the “impact of these rules.” She said a listen and learn session on the topic in April involved extended discussion on WAC 314.55.101 and 314.55.102 so she chose to provide “a more significant analysis of why, the agency’s thinking on why pesticides and heavy metals should be included at this time” in addition to outlining the rule’s phase in plan and research utilized.
    • Hoffman acknowledged that the drafted changes represented WSLCB’s “initial sort of rule proposal in this space” and the agency would be open to new or better data “after this proposal is filed” even if it necessitated filing a supplemental CR-102 at a later time.
    • Hauge asked about the listen and learn session attendee feedback on “lot size.” Hoffman answered that it had been the first session using the listen and learn format, and had been “heavily weighted towards” cannabis laboratory representatives who wanted smaller lot sizes, with licensed producer/processors in attendance split on the topic. She anticipated receiving more comments once the CR-102 was filed including at the eventual public hearing. Hauge responded that he’d seen Bellingham licensee Trail Blazin’ Productions doing pesticide and heavy metals testing following the Department of Health (DOH) QA testing rules “which do not demand a specific lot size but that the sample represent the crop.” Hoffman said those were the type of comments she hoped to hear “in a more formal way” and contrasted “some of the feedback that we got at the first listen and learn session was ‘I don't like, A, B, or C’ instead of ‘I don’t like it and here’s my... here’s what I’m offering as a alternative, as a solution.”
    • Hauge said he’d soon be meeting with Enforcement Commander Jennifer Dzubay to follow up on the Washington State Department of Agriculture (WSDA) cannabis testing program with WSLCB. He asked Hoffman “to what extent was consideration of that program folded into these discussions?” She replied that among those who had responded or participated some had wanted to see the WSDA/WSLCB interagency agreement greatly expanded. Hoffman said she’d be conferring with Dzubay and Cannabis Examiner Manager Kendra Hodgson on the limits of the contract going forward. Hauge said he had no “hint that anyone is gaming the system” but that for any “voluntary compliance testing regime” the agency needed “to have a check in the system.”
    • Hoffman noted that the large comment matrix included tangential observations that may be better served in other rulemaking projects.
      • The Washington SunGrowers Industry Association (WSIA) submitted a position statement on the rulemaking project dated December 31st.
  • Voluntary Compliance Program (WSR 19-15-074, audio – <1m). Hoffman reported that she was nearly finished with draft conceptual rules for internal circulation. She expected to schedule a listen and learn session for stakeholders to give feedback on the conceptual draft “towards the end of February.”
  • True Party of Interest (TPI, WSR 18-22-054, audio – <1m). The final draft of the proposed rules for TPI had been “a little bit delayed.” However, Hoffman expected the CR-102 would be moved forward in “mid-to-late February.”
  • Incremental Expansion of Tier 1 Canopy (WSR 20-01-171, audio – <1m). The rulemaking project, opened last month, had drawn three comments to date. Hoffman said she’d spoken with licensee Danielle Rosellison of Trail Blazin’ Productions the Friday before on issues including quality control and canopy. She added that Rosellison promised to submit her perspectives in writing as well.
  • Vapor Product Emergency Rules (audio – 1m). Hoffman reported that the agency was tracking vapor legislation for both tetrahydrocannabinol (THC) and non-THC products “that are moving forward.” She was also following the State Board of Health (SBOH) emergency rules banning flavored vapor products and those containing vitamin E acetate to see “whether one or both of those rules will be extended.” Hoffman said her current understanding was that SBOH’s flavor ban would “not be extended, but the vitamin E acetate will be extended.” She expected the agency would see SBOH act on the emergency rules no later than February 7th, then end of the flavor ban’s 120-day limit, while the emergency rule on vitamin E acetate expired later.
    • At publication time, SBOH had yet to schedule a public meeting to take action on either ban since their last meeting on January 8th.
    • SB 6254, legislation on non-THC vapor products requested by the Governor and shepherded by the DOH was scheduled for its initial public hearing in the Senate Health and Long Term Care Committee on Wednesday January 22nd.
  • Rule Forecast (audio – 2m). Hoffman explained that she had three rule petitions she’d be bringing to the Board, one related to quality control, another on pesticide action levels from WSIA, and a third on “price fixing.” In addition, Hoffman said she’d be “reviewing advertising rules” while tracking new legislation which could modify those laws.
• Director Rick Garza described his testimony from the previous day before the House Commerce and Gaming (COG) Committee on WSLCB’s enforcement reforms.
  • Garza shared the results of the Hillard Heintze report regarding the WSLCB’s enforcement practices and outlined the agency response for the committee on January 20th. He described “three themes”: creating a “legal policy unit,” increased education efforts, and addressing “those issues that we saw that were of particular interest to the cannabis industry” (audio - 12m).
    • Garza highlighted his comments on improving the relationship between licensees and the agency - "not just Enforcement." He emphasized the agency’s planned revisions for Enforcement officer uniforms, as well as modifications to the “position description” for Enforcement staff.
    • Garza said he’d described the need to "recalibrate or reboot" cannabis regulations through the agency’s Cannabis 2.0 initiative.
    • Garza provided more detail on the agency’s “proposal to revise a handgun policy” for the Enforcement division. Rushford explained that WSLCB was “midway” through a 30 day period for reviewing handgun protocols, and had a meeting scheduled for January 30th with regulators from Colorado and Oregon to hear about their approach. “Enforcement is struggling with what it means,” Garza said, commenting that the division’s staff and union representatives were expected to provide feedback by February 9th. 
    • Garza added that he fielded a variety of questions from lawmakers about the legal policy unit and what form education and outreach efforts would take. He said there were "not any concerns to what we shared or feeling that” the agency’s proposed changes were inconsistent with the report.
• Garza talked about a meeting at the Department of Commerce followed by board member mentions of meetings on cannabis testing and agency efforts to track legislative activity.
  • Garza, Deputy Director Megan Duffy, and Josh McDonald from the Washington Wine Institute (WWI) met with Department of Commerce Director Lisa Brown. McDonald’s group was looking for small business technical assistance for wineries from Commerce. Garza reported that Brown was receptive to helping that industry and pointed out that similar requests had been made by the cannabis industry.
    • Board Member Ollie Garrett asked if the conversation had touched on the agency’s proposed social equity request legislation. “Very little,” Garza responded, saying Brown was aware of WSLCB’s efforts but more involved with HB 2263, legislation promoted by the Washington CannaBusiness Association (WACA) to establish out of state ownership and a social equity program funded by “certain investments” in cannabis licenses that included a fee supporting competitive grants. Garrett said others at the department who “weren't part of the meeting" had reached out to her and requested another meeting to focus on equity and “the role that Commerce is to play in the social equity bill.”
      • WACA requested HB 2263 and its senate companion be “withdrawn from consideration” the day after the bill’s COG public hearing.
  • Hauge mentioned taking meetings to “get a better sense of where we’re at” with quality control rules and “how they’re actually going to work.” He anticipated “interesting discussions” would begin after the CR-102 was filed. Hauge felt the rulemaking project struck at the core of what WSLCB “going to do to guarantee that there are safe products” (audio - 1m).
  • Rushford pointed out Director of Legislative Relations Chris Thompson had sent out his first weekly update of the 2020 legislative session a day earlier. Hauge called it “a good piece of work,” with Rushford adding that she was confident the Board was hearing about legislative developments in a timely manner, something members found lacking during the 2019 session (audio - 2m).
    • See Thompson’s legislative updates for the Board from last year’s session and his bulletins sent to particular legislators and legislative staff during the interim between sessions:
      • August 2019
      • September 2019
      • November 2019