WSLCB - Board Caucus
(February 11, 2020)

Here are some observations from the Tuesday February 11th Washington State Liquor and Cannabis Board (WSLCB) Board Caucus.

My top 3 takeaways:

• A trio of petitions for rulemaking on sales below cost, quality control testing, and permitted pesticides were presented for the Board’s consideration.
  • The last agency rulemaking update covered by Cannabis Observer was on February 4th and the last petition for rulemaking was considered on January 7th.
  • WSLCB Policy and Rules Coordinator Kathy Hoffman introduced the first petition regarding the practice of selling cannabis below cost (audio - 11m).
    • Hoffman said the petition was “started by email” on December 9th when the petitioner, Daniel Solaro, included her on a lengthy email chain inclusive of the Board, legislators, and others in which he expressed a desire for a rule change “to prohibit selling below cost.” Hoffman interpreted his remarks as “concerning discontinued marijuana sales'' referencing WAC 314.55.135 which reads, in part, “a producer, processor or retail licensee who permanently discontinues business for any reason” must “dispose of any saleable inventory and remaining stock” to a “licensed business at fair market value.”
    • "At first Mr. Solaro was a little reluctant to put this forth as a rule request,” Hoffman continued, saying he’d preferred to have the Washington SunGrowers Industry Association (WSIA) “or some other association” submit the petition on his behalf. On December 19th, Solaro communicated that “the rule should be amended to clearly prohibit ‘dumping’ which is sales below cost in both the case of liquidation and everyday sales.” Hoffman chose to interpret his remarks as constituting a petition for rulemaking and decided she was “going to move it forward on that premise.”
    • Hoffman first brought the issue to WSLCB’s Enforcement and Education division which had no reports or data suggesting a “massive” trend towards those types of sales. This led Hoffman to wonder if Solaro’s request was “asking LCB to fix costs or set a threshold for the lowest possible cost of marijuana product, and we are unable to do that by way of regulation.”
    • Hoffman mentioned SB 6057 - “Concerning price differentials in the sale of marijuana” (the “wholesale discounts” bill) as she believed it was “speaking to this concern right now in the legislature” and “moving forward, past the policy committee cutoff.” Hoffman believed the bill, if it were to become law, could begin “to address this concern that he’s asserting here but I think our rule is doing what it is supposed to be doing at this time.”
      • See Cannabis Observer’s coverage of SB 6057’s policy committee public hearing on January 23rd and executive session on January 28th. The bill currently sits in the Senate Rules Committee.
      • WSLCB’s fiscal note for SB 6057 attests that the bill was expected to have “No Fiscal Impact” enabling the bill to bypass consideration by a fiscal committee and the corresponding fiscal committee cutoff. The legislation has until February 19th to be passed by the Senate, its chamber of origin.
    • Board Chair Jane Rushford wanted to discuss Solaro’s allegation that the agency had violated the state’s Open Public Meetings Act (OPMA). Hoffman replied that Solaro claimed the agency conducted “illegal closed meetings” when WAC 314.55.135 was “originally promulgated” in which the WSLCB discussed “price floors, predatory pricing, et cetera.” Hoffman was confident this was unlikely. Rushford said, “I know that the Board did not have private, behind closed door meeting regarding it,” but acknowledged the possibility that agency staff had held private meetings covering those topics “in another rulemaking” before Hoffman’s tenure as Policy and Rules Coordinator. Hoffman was sure Solaro was not referencing her introduction of listen and learn forums in his claim that “discussions of the pricing and appropriate price floors to protect small farmers and businesspeople were never deliberated in public as required by law.” She felt his allegation was “unsubstantiated by any of our record keeping.”
    • Hofffman’s recommendation to the Board was “to deny at this time for the reasons stated” in her analysis and monitor legislation on the topic to “see if there’s any authority conferred to us to revise these rules.” She expressed a willingness to consider “additional information [that] comes to our attention that can substantiate any of these allegations.”
    • Board Member Ollie Garrett noted Solaro made quite a few other allegations about the WSLCB, which prompted Hoffman to note that he’d added Representative Shelly Kloba to the email chain somewhere along the way. In a subsequent message to Hoffman, he claimed Kloba “and her staff was looking into his concerns."
    • The board voted to deny the petition. Hoffman said she was still “honoring and paying attention to [Solaro’s] concerns because he has many” and would be including the issues he raised in “rule development around themes that we see emerging in stakeholder feedback.” She planned to engage him on topics he indicated interest in.
  • Hoffman invited WSLCB Chemist Nicholas Poolman to assist during her presentation of a petition from Crystal Oliver, Washington SunGrowers Industry Association (WSIA) Executive Director. WSIA sought to modify WAC 314-55-102 on quality assurance testing to “completely do away with enterobacteria testing of any type” (audio - 6m).
    • Hoffman noted that when the Quality Control (QC) Testing and Product Requirements rulemaking project began in August 2018, the agency had received a single comment “questioning the necessity of Gram-negative bacteria testing - and that’s where we pick up whether or not enterobacteria is present.” Aside from this initial comment, Hoffman noted that no one mentioned enterobacteria testing at an April 2019 listen and learn session which specifically covered changes to WAC 314-55-102, nor during a second listen and learn session in August 2019 which allowed for conversation on cost mitigation techniques.
    • Poolman said there had been a work group “in [20]17 and ‘18” comprised of multiple agency staff and industry stakeholders which took steps to reduce “multiple fields of testing including total yeast and mold and total aerobic.” Poolman noted the work group decided testing for enterobacteriaceae was “acceptable still because it did present a risk to consumer health.” However, Poolman observed that “two years down the road they’re coming back with, they no longer think that is true.”
    • On October 25th, 2019, Hoffman said she’d received a letter from a “lawyer representing Jeremy Moberg,” owner of tier 3 producer/processor CannaSol and WSIA Board President, inquiring “why we were testing for enterobacteria and then asking us just to remove it as a requirement.” She’d responded in the negative on November 15th, citing the ongoing rulemaking project and state Administrative Procedures Act (APA) as the methods to pursue change. WSIA’s petition for rulemaking then arrived on December 16th.
    • Hoffman noted a technical difficulty with the petition: “we can’t open a rule on a rule that’s already open.” While she recommended denying the petition, she said it could be submitted as a “formal comment” on the QC testing rulemaking project. The agency would consider the requested change and “invite WSIA to make a public comment if they wish at the hearing.” The Board agreed and voted to deny the petition.
  • The final petition, developed from an email by Oliver also received on December 16th, concerned the pesticides pyrethrin and piperonyl butoxide (PBO). Hoffman said the email subject, “Reform of pesticide action levels for [WAC] 314-55-108,” caused her to assume the petition was “generally an overhaul of the action levels” but found “the actual rule petition is much narrower than that” (audio - 13m).
    • The petition requested the removal of pyrethrins and PBOs from the “list of pesticides with action levels.” Hoffman recounted her interpretation of three justifications offered. The change would:
      • “Align LCB action levels” with U.S. Environmental Protection Agency (EPA) “federal tolerances”
      • Align agency pesticide regulations with Washington State Department of Agriculture (WSDA) policies
      • “Addresses the current rule’s disproportionate impact on farmers who cultivate outdoors and organically.”
        • Hoffman interpreted the petition’s usage of the word “organically” as referencing the federally-defined term “organic” and emphasized that “we don’t have organic marijuana farming” in the state. She felt her interpretation of WSIA’s “assertion, that’s kind of a problem with respect to talking about ‘disproportionate impact.’”
        • Hoffman relayed that she’d reached out to Brenda Book at WSDA about that department’s Certified Cannabis rulemaking project which aimed to create a state-based organic equivalent standard. "But those rules haven't moved forward at all," she said, adding that she’d tried to contact Book repeatedly via email without a response and would “soon start my telephone campaign to say ‘What is happening?’ and ‘Tell us where you’re at with this.’" Hoffman felt speaking with Book would help her better respond to licensee assertions “that they’re growing organically.”
    • Hoffman offered background on “where we have gone and been with respect to [WAC] 314.55.108” saying the agency had modeled its pesticide action levels on testing rules from Oregon “so that we’re in alignment with another state who’s done additional testing in this area.”
    • Addressing “pyrethrin use in cannabis production,” Poolman described its use “for a lot of foods, it comes from chrysanthemum flowers so the idea is that it should break down very quickly in soil, or in the air.” However, he claimed it was possible to improperly use pyrethrins either by adding too much or at the wrong time in plant growth. In Poolman’s earlier work at WSDA’s cannabis testing lab, he’d seen pyrethrin detected at levels “1000 fold” higher than permitted and “also samples that had nine to ten different pesticides on them. So to say there’s pesticide misuse is a fairly accurate statement.” Poolman said that “to continue having some rigor of testing, I think, is appropriate." Hoffman added that pyrethrin levels had been set based on food, but that little research existed on the compound’s use on products that may be combusted and inhaled.
    • In addition to Washington and Oregon, pyrethrins had been approved for cannabis production in Alaska and California. Hoffman said that California had nearly prohibited them after “their testing regime or their protocols indicated that pyrethrins were especially dangerous if combusted.” Poolman explained that California’s Department of Pesticide Regulation (CDPR) had done research on the substance and decided to permit it.
      • See CDPR guidance on “Cannabis, Hemp, and Pesticides” and “Which Pesticides Can I Use on Cannabis in California?”
    • Hoffman was of the mind that since the FDA offered no pesticide guidance for cannabis, extending that agency’s standard for pyrethrins used on food offered little reassurance as “they’re two different substances, or products, consumed in very different ways. I mean, we don’t smoke apples.” Hoffman’s levity elicited a round of chuckles punctuated by Rushford’s acknowledgment of “those Cosmic Crisps!”®
    • Hoffman recommended denial of the petition because “further research is required to assess how these pesticides, including pyrethrin and PBOs, affect the human body” when pyrolyzed. Such research could lead to reducing the action levels for these pesticides “or removing” them altogether. “To do that at this point would place consumers at heightened risk of exposure to these chemicals,” she concluded.
    • Board members voted to deny the petition.
    • In closing, Hoffman and Poolman mentioned “technical revisions we’d like to make” in WAC 314-55-108 and suggested it might be worth revisiting “this conversation around pyrethrins at [that] time.”
  • Garrett thanked staff for their work and for doing “a lot of research and due diligence before you bring it to us.” Hoffman said “I feel like we're building a knowledge base" for future rulemaking. Poolman remarked that he was “in pretty open communication with" WSDA and Department of Ecology (DOE) chemists as well as cannabis laboratories endeavoring to “build that knowledge base.”

• Board Member Ollie Garrett mentioned progress on the agency’s request legislation HB 2870 - “Allowing additional marijuana retail licenses for social equity purposes.”
  • Board Members last discussed HB 2870 during the February 4th Board Caucus.
  • Garrett briefly spoke about “tweaking” the measure along with briefing Will Housa, Chairman of the Washington State Commission on African American Affairs (CAAA), on “the history of what we’ve done here and how we got where we are.” She planned to meet with CAA Commissioner Paula Sardinas later that day to hear her feedback on the bill’s most recent House Appropriations hearing. Garrett commented that there was “a lot of conversation between the Governor's Office, everyone” about the legislation (audio - 1m).
    • Hear Housa’s reasoning for testifying “other” during HB 2870’s initial public hearing on February 3rd (audio – 2m, video).
    • Hear Sardinas’ advice for amending the legislation during the same hearing (audio – 3m, video).
  • After a late introduction on January 28th, HB 2870 was granted a public hearing by the House Commerce and Gaming Committee on February 3rd. Subsequently, a proposed substitute for the bill incorporating most of the CAA’s suggested revisions was adopted and recommended by the policy committee during executive session on February 6th. The House Appropriations Committee (WA House APP) hosted a public hearing on the bill on Monday February 10th where members considered the original fiscal note which projected annual state revenues of roughly $5 million; a revised fiscal note was filed later in the day. WA House APP met for the last time before the house of origin fiscal committee cutoff on Tuesday February 11th. During executive session, the committee amended a second substitute of HB 2870 and recommended the revised bill out of committee (19 aye, 12 nay, 1 without recommendation). At publication time, the legislation sits in the House Rules Committee and has until February 19th to be passed by its chamber of origin.

• Looking ahead, board members mentioned several upcoming meetings (audio - 2m).
  • Garrett was scheduled to meet with Paul Dziedzic of Paul Dziedzic and Associates ahead of a planning meeting for the Board on Tuesday February 25th.
    • The last planning meeting for the Board was facilitated by Dziedzic in July 2018.
  • Rushford said that a date in early June had been set “for the Regulators Roundtable in Portland.” She planned to attend for the first time and recommended staff “divide the days” at the event as “it’s so close.”
  • Rushford expected the following day’s Executive Management Team (EMT) meeting would be “a bit abbreviated” but would include a legislative update from WSLCB Director of Legislative Relations Chris Thompson.
  • Though not mentioned during Caucus, Cannabis Observer obtained more information about the City of Seattle’s Cannabis Equity in Our Community Forum scheduled for Saturday February 22nd. Garrett was invited to speak on a panel about community experiences with the legal cannabis landscape. City officials planned to share preliminary research and analysis on the “disparate racial impacts of the criminalization and legalization of cannabis.” Other panelists include:
    • Rick Dimmer, Seattle Department of Finance and Administrative Services Purchasing and Contracting Division Field Enforcement Representative
    • Bobby Lee, Seattle Office of Economic Development Director
    • Cherie MacLeod, Seattle Department of Finance and Administrative Services Consumer Protection Division Strategic Advisor and Marijuana Program Coordinator
    • Kelly O’Brien, Seattle Office of Civil Rights Racial and Social Justice Initiative (RSJI) Strategic Development Specialist