WSLCB - Board Caucus
(January 28, 2020)

Here are some observations from the Tuesday January 28th Washington State Liquor and Cannabis Board (WSLCB) Board Caucus.

My top 3 takeaways:

• The Board talked about craft cannabis legislation in Washington state and other cannabis policy trends they’d observed.
  • Board Member Russ Hauge had been interested in defining and supporting “craft cannabis” for some time. He’d been made aware of HB 2279, “Improving the development of the marijuana market by enacting provisions specific to craft cannabis production,” when Raven Owner Micah Sherman asked the Board to support a “conversation” around the bill during general public comment at the January 22nd board meeting. Acknowledging the WSLCB had no formal position on HB 2279, Hauge said he personally was “generally favorable" (audio - 12m).
    • Hauge noted that “craft cannabis growers” was currently a “term that is undefined and also, sometimes, used kind of loosely." He noted the bill established a way of defining craft cannabis production and processing in Washington state.
    • Hauge later noted HB 2279 "also sets up an advisory board" and believed that body would help continue honing WSLCB’s “definition of what is a craft cannabis producer.”
    • Hauge spoke of “points of contention” around the bill, namely that retailers “really want to protect their monopoly on sales,” a power dynamic which could shift with HB 2279’s creation of craft cannabis producer and processor license types permitted to sell their own products directly to consumers.
    • More fundamentally, according to Hauge, was whether small growers “who want to stay small will be able to survive if the safety is taken off for outside-the-state investment and for corporate investment.” One goal of the bill was establishing “some protections in place" before “the legislature allows big-time corporate investment." Otherwise, small licensees could “get pushed out of the market” and, in Hauge’s estimation, the WSLCB would eventually be expected to “redo what we already have started now.”
  • Board Chair Jane Rushford expressed a desire to “dive more deeply into that because there are so many important preferences regarding how that works and what it means and the possibilities or detriments of that.” Hauge stated, “it is not the LCB's job to pick winners and losers." However, “looking at the market" he felt that "we're not going to be picking winners and losers, we're going to be picking losers" unless the agency dealt with craft grower policy with the same urgency as outside investment in large growers.
  • Board Member Ollie Garrett said she’d had a “lengthy conversation” with Representative Eric Pettigrew the week before and believed "his vision is overlooking what we're discussing.” Garrett relayed Pettigrew’s view that corporatization and outside investment was “eventually something that's going to happen anyway," whereas Garrett suggested protecting growers who intended to stay small. “I was trying to help him see that piece of it.”
    • Pettigrew was the Majority Caucus Chair and influential in cannabis legislation. In 2019, he sponsored HB 1792 which was signed into law last May. In 2020, Pettigrew championed HB 2263 on out-of-state ownership and WSLCB’s social equity request legislation, HB 2870.
  • Director Rick Garza joined in on the conversation to remind the Board that "outside finance and investment is allowed today," and at issue was ownership of licenses. In Hauge’s view, corporate investment would heavily impact WSLCB’s vetting of cannabis license owners and “the question is not whether that’s a good or bad thing, it's a question of whether our market is ready for it." Garza countered “that fear is always going to be there from small business” and felt concerns about “big business or large corporations [having] a stronger hold on the marketplace than they do today” drove the conversation at the public hearing on HB 2263. When it came to policy changes on “investment, financing, or ownership,” Garza asserted “there’s gonna be some impact to [small businesses]. How great it is, is the debate, right? When people are up there arguing that, ‘I’ll be impacted as a small business, I won’t be able to survive if this huge, these companies are allowed to come in.’”
  • Hauge referenced his panel appearance before the American Bar Association (ABA)’s Business Law Section in April 2019 and a comment made that “craft brewers and craft wineries are doing just fine.” Hauge’s response was that in Washington, unlike breweries and wineries, cannabis producers and processors “don't have any direct access to the market,” through direct sales or “tasting rooms” and “all that stuff that sustains a small business in the face of a pressure to grow bigger.” He felt it was the Board’s obligation to pursue “what can we do" to further a “balance in the market.”
  • Garza claimed several bills had been introduced to grant producer and processor licensees privileges similar to wineries, however "I just think in a short session...I just don’t know how many of them will move forward.”
    • In 2019, HB 1945 involved direct sales and on site tasting while HB 1995 would have enabled direct sales by producers. Neither bill was heard by their policy committee in 2019 and both bills remain inactive this session.
    • In 2020, HB 2871 and SB 6603, the WSLCB’s request legislation introduced late last week, concerned “Establishing a retail privilege endorsement to a marijuana producer license” in addition to HB 2279.
  • Garrett asked about “social consumption,” lounges, or cannabis event legislation and Garza said to his knowledge nothing was advancing. Rushford noted social consumption laws had taken effect in Alaska and were in the planning stages in Illinois. Colorado and Nevada also have state and tribal cannabis lounge policies, respectively.
    • Garrett also mentioned Illinois’ “amnesty box” for people wishing to dispose of legal cannabis before flying out of Chicago airports. Garrett claimed the box’s drop slot was large enough that travelers were “reaching their hand in the amnesty box and getting products, and going on about their business.”

• Board Member Russ Hauge provided an update on his research into the WSLCB’s interagency agreement with the Washington State Department of Agriculture (WSDA) for cannabis testing.
  • Hauge had been pursuing a better understanding of the interagency agreement with WSDA to perform a limited number of cannabis tests at the Department’s state lab. Established in 2016 for random testing, the agreement also provided for testing samples obtained by WSLCB Enforcement during investigations.
  • Hauge said he first met with Policy and Rules Coordinator Kathy Hoffman, Cannabis Examiner Manager Kendra Hodgson, and WSLCB Chemist Nick Poolman about the contract. Then, he spoke to Enforcement Commander Jennifer Dzubay and Patrick McMillan, the Enforcement division's “evidence technician” who “handles the Enforcement/Ag contract” (audio - 3m).
  • Hauge noted that WSLCB was paying for two full time employees (FTEs) at WSDA. “We bought all their equipment, and there is no, at least from the people I talk to in our organization, there’s no sense that this is going to go away. This is a permanent relationship.”
    • Under Attachment A of the contract, WSLCB paid WSDA $755,000 for laboratory equipment.
  • Hauge believed the Board “could benefit from knowing more about this” and requested Dzubay give a presentation at an upcoming board caucus on “how that contract is currently being used, what it may look like in the future.” He requested an emphasis on how the agreement could be utilized to further the agency’s quality control (QC) goals in coordination with the on-going rulemaking project.
  • Hauge said he was “very encouraged” but still had more to learn about the issue. He asked Rushford and Garrett to look at the interagency agreement with him as “that is a legitimate avenue for us to provide some checks in what is now a voluntary system for testing of cannabis product.”
  • Rushford asked how involved Hoffman was, prompting Hauge to say there wasn’t a "really strong connection" between Enforcement and the Cannabis Examiners on the contract. His impression was that neither Hoffman nor Hodgson was “fully informed either.” Hauge felt the situation was an "opportunity to kind of break down some silos" and “do our jobs better.”

• Hauge outlined a potential connection between the Washington State Department of Agriculture’s stalled “Certified Cannabis” standard and the WSLCB’s Quality Control rulemaking project.
  • Certified Cannabis was the organic-equivalent standard included in SB 5131, an omnibus bill of cannabis changes adopted by the legislature in 2017. WSDA’s Certified Cannabis rulemaking project was announced by the department on May 16th, 2017. The last update from WSDA on the project covered by Cannabis Observer was during a legislative work session in December 2018. WSLCB Research Consultant Trecia Ehrlich recently mentioned the proposed Certified Cannabis designation during an August 2019 listen and learn session (audio – 1m).
  • Hauge explained he’d met with Sherman, Washington SunGrowers Industry Association (WSIA) Lobbyist Bryan McConaughy, and “others” about WSDA’s Certified Cannabis rules, which were said to be nearing adoption (audio - 3m). 
    • Hauge had been surprised to learn that WSDA’s Certified Cannabis rules were “in final form.” For qualifying applicants, WSDA would provide documentation “to cannabis farmers that what they are doing meets the requirements of what we could call a responsible and sustainable agricultural practices including not using pesticides or having any exposure to heavy metals.” He wondered if WSLCB’s proposed changes for QC, requiring cannabis be tested for heavy metals and pesticides, would be “layering on a requirement that isn’t necessary.”
    • According to Hauge, “there's some hangup with Ag actually adopting those rules." Though the original timeline projected the program would begin taking applications in the spring of 2019, updates from WSDA were difficult to find. The Certified Cannabis rules were not on WSDA’s recently adopted or open rulemaking pages, nor was the standard or application available on WSDA’s Recreational Marijuana or Certified Organic Operations pages. Hauge contended that “if those rules were in place, from Agriculture, they would answer a lot of questions about pesticides and heavy metals for a lot of growers.”
  • Rushford suggested the situation was ripe to “connect the agency dots” through WSLCB’s proposed Cannabis 2.0 project to coordinate multiple state institutions with a stake in cannabis regulation. Hauge promised to follow up with WSDA once he “figures out which way to go.”