WA SECTF - Work Group - Licensing - Public Meeting
(February 10, 2022)

Here are some observations from the Thursday February 10th Washington State Legislative Task Force on Social Equity in Cannabis Licensing Work Group (WA SECTF - Work Group - Licensing) Public Meeting.

My top 3 takeaways:

• During the first meeting of the reconstituted work group, members introduced themselves revealing a mix of new voices and veteran perspectives.
  • The WA SECTF statute requires recommendations on existing cannabis licensing and new or modified licensing types, leading to the formation of the licensing work group in April 2021.
    • Over the course of six meetings in 2021, work group members contributed to task force recommendations on existing license types. Some of those recommendations were incorporated into legislation, HB 2022, which was passed by the Washington State House Appropriations Committee (WA House APP) on February 7th but was not subsequently considered by the Washington State House of Representatives.
    • At the January 24th task force meeting, members agreed to continue the work group as they prepared to make final recommendations to lawmakers by December 9th, including on the “social equity impact of creating new cannabis license types.” 
  • Monica Martinez, Owner of The Calyx Co., representing cannabis producers, returned as Co-Lead (audio - <1m). 
  • Micah Sherman, Raven Co-Owner and WA SECTF appointee representing licensed processors, was formerly a work group member and returned as Co-Lead (audio - <1m). 
  • Mike Asai, Co-Founder of Emerald City Collective Gardens (ECCG) described his former business as the “second Black-owned medical cannabis” dispensary in Washington and the first in Seattle (audio - 1m).
  • Jim Buchanan, Washington State African American Cannabis Association (WSAACA) President, said he’d been in “[Initiative] 502 retail since 2015” (audio - <1m) 
  • Ollie Garrett, a WA SECTF appointee representing the Washington State Liquor and Cannabis Board (WSLCB) was a returning work group member (audio - <1m) 
  • Joy Hollingsworth, The Hollingsworth Cannabis Company (THC) Co-Founder and former task force staff, joined “representing producer/processors” (audio - <1m).
  • Angel Swanson, a retail title certificate holder and returning work group member, spoke up later in the meeting.
  • Several members of the work group were not available when called upon by WA SECTF Manager Anzhane Slaughter:
    • TraeAnna Holiday, King County Equity Now (KCEN) Media Director and former Africatown Community Land Trust Community Organizer
    • David Mendoza, Progreso Board President and appointee “representing the Latinx community”
    • Crystal Oliver, Washington Sun and Craft Growers Association (WSCA) member, former licensed producer, and returning work group member 
    • Emijah Smith, Cultivating the Genius of Black Children Strategist and KCEN Chief of Staff
  • Several other WA SECTF members joined the meeting:
    • Representative Melanie Morgan, WA SECTF Chair
    • Paul Brice, Happy Trees Owner and WA SECTF “community advisory member” noted his previous work with medical dispensaries in Kittitas County before becoming a licensed retailer (audio - 1m).
    • Raft Hollingsworth, THC Co-Owner and WA SECTF appointee
    • Jim Makoso, Flowe Technology CEO, Lucid Lab Group Director, a task force appointee and former member of the WA SECTF Technical Assistance and Mentorship Work Group, noted he’d worked as a processor for four years, and had prior experience “with some ancillary companies” (audio - 1m).

• Members discussed possible task force proposals on local revenue sharing, additional licenses, and the need for equity license mobility as ways the group might contribute.
  • Sherman explained there were recommendations from the group that hadn’t been endorsed by the full task force “prior to the start of the legislative session” - though some had made it into HB 2022. He said any of the concepts not yet endorsed by WA SECTF would be presented again in the hopes that task force adoption would “get ‘em on the record” (audio - 1m). 
  • Local Revenue Distributions (audio - 1m) 
    • Sherman said a proposal to modify the cannabis excise tax so that local jurisdictions could keep more of the revenue was under consideration, but “right now it goes into a big fund and then it has conditions on when, and how much, and how it gets allocated.” He theorized that a portion could go “directly to the municipality where the sale [takes] place” instead, helping incentivize “them to support and accommodate the new licenses” for equity applicants.
    • SB 5796, legislation modifying statutorily encouraged cannabis appropriations, proposed to increase annual distributions to local governments by more than $4.4 million. The most recent hearing on the bill was February 22nd.
  • Producer Licenses (audio - 2m) 
    • The group had considered advising the addition of “200 new producer licenses…between now and 2029,” a concept which made it into HB 2022, Sherman commented. A goal, he said, was “making sure that as these producer licenses are put into existence that the…considerations are made for how the market is doing” as existing producers found the market “particularly challenging” due to competition and the allowance of “more productive capacity than we have a demand for.” Sherman shared the consensus view of the previous iteration of the work group that equity licensing in cannabis production mattered, but felt the group had to advance with an eye towards “those factors” in the marketplace.
    • Sherman noted that Washington state was likely to “eventually be a market that can move stuff to other states” and export considerations would likely justify greater production capacity. “In order for one person to succeed, it’s not predicated on another person failing,” he emphasized.
    • Raft Hollingsworth remarked in chat that new producer and processor licensing was unlikely to affect whether or not there was overproduction of cannabis in the Washington market. Sherman was in agreement, conveying a “generally held belief…that we’re somewhere between 500% and 1,000% over capacity.” The introduction of new production licenses was staggered to gradually add around 10% more capacity to the sector, which was less likely to have a “substantial impact” (audio - 2m). 
    • Brice remarked it was difficult “to come to the market and be successful,” and wondered what metrics would be used for “gauging” expansion of production licensing. Sherman replied that “we're supporting a path" that will allow equity applicants to make that choice as “new folks deserve a chance to come in." Brice was convinced there’d be some “destabilization” of the sector, pointedly saying that new producers starting up—even with grant support—had a long path to profitability and needed to understand risks before applying for licensure. Martinez concurred that was “exactly the way it is” for “existing small, minority farms like myself” which faced “consolidation” from bigger businesses (audio - 4m).
    • Makoso responded to Brice’s “illumination” of the subject, saying that he’d gotten a processor license “primarily just to do research” but that he was also in “final stages of getting our research license just to make a statement of how difficult it is to get a license to do research.” He said his production facility focused on cannabis edibles and “repackaging” flower for sale, adding, “we make very little money, but we’re passionate about it.” Makoso was eager to begin partnering with academic researchers and companies “really interested in some of the data that we’re starting to create.” He also expected the problems described by Brice and Martinez, but felt the goal of the work group should be to see “an equal opportunity for people to participate,” not to “guarantee” that all equity licensees would succeed (audio - 3m). 
    • Morgan lauded Brice and Makoso’s “very true statements,” noting that legislators looking at increased cannabis licensing questioned “how long does it take to actually build a profit margin,” and whether licenses would be “sitting dormant” if there wasn’t a qualified equity applicant for them. She wanted the group’s help respectfully communicating to her fellow legislators that “Black and Brown people just now are getting into the industry, so give us a minute.” Morgan amplified Makoso’s point that WA SECTF didn’t exist “to guarantee success, it’s about creating access, and the pathway." However, she’d found that “in the fight around cannabis” policymaking in the legislature, “they’re going to find every reason not to,” so the group needed to weigh issues of business viability and contingencies in the event there weren’t enough qualifying equity applicants (audio - 2m). 
    • Buchanan considered “Paul’s main point” to be what support WA SECTF could “put around the licensees to [help them] succeed,” particularly for production and processing. He also agreed they should enable opportunities for success, not promise it, as it would take time “for folks to…understand because we’re coming into something” that was already “fully developed.” Comparing the situation to starting later in a race, Buchanan wanted the work group to stay “sensitive” to how they could set applicants up with the greatest odds for success. He also asked those considering applying to not be discouraged by the conversation, suggesting they could build on the innovations of those already in the cannabis sector as “there are blueprints now" (audio - 3m). 
  • Retail Licenses (audio - <1m) 
    • Additional retail licenses for social equity had been included in HB 2022, Sherman observed.
      • The bill would be considered dead by WSLCB leaders days later, although it was subsequently suggested that parts of the bill may be amended into other legislation.
  • Licensed Premise Relocation (audio - 1m) 
    • Social equity licensees and “current title certificate holders who fit the definition” of equity applicants would be empowered to move their store to “any municipality in the state that is interested in having more licensing in their municipality,” explained Sherman. He believed this would make equity retail licenses more “useful” and easier to “get into the economy.”
    • The change was included in HB 2022 and WSLCB Director of Legislative Relations Chris Thompson suggested the language was a priority to try to amend into other legislation, as that would make existing available licenses “more usable.”
  • Social Equity Licensure (audio - 1m) 
    • The goal of getting half of cannabis licenses held by those who qualified as equity applicants wasn’t part of HB 2022, Sherman noted, but would “come into effect after” the equity licensing window ended in 2029. This benchmark was so that in the 2030s, after the equity program concluded, there would be a standard to gauge market equity, he remarked.
  • Swanson asked about qualifying as an equity applicant, and whether people “who hold licenses already, do they immediately fall into the category of social equity licenses,” or would they have to apply for the status. Sherman was uncertain, assuming that would be part of WSLCB rulemaking on the topic. Morgan spoke up to say that could impact whether a current licensee qualified for loans or grants under the equity program. Swanson then emphasized the importance of including license mobility for title certificate holders such as herself that had been barred from operating due to local cannabis ordinances. Martinez was confident that it was part of the mobility wording in HB 2022, but Swanson remained concerned that local governments needed incentives to allow equity businesses within their borders (audio - 3m).
  • Swanson later asked about dormant licenses, whether they had been defined, and if equity license holders could sell their license after failing “and recoup some of their money,” something she felt “should be a right.” Sherman understood “transferability” was limited to sale of a license to persons who qualified as social equity applicants. Morgan argued that they were “creating a pathway to participate in the cannabis industry” and businesses could fail, but nothing enacted or proposed gave “anyone the right to come in and take your license.” She didn’t think any government body would be evaluating business viability beyond the role of regulators to ensure compliance with laws and rules. Sherman clarified that for those with an “active retail license” there were requirements on the minimum number of days and hours they were operational, but no other “requirements about activity that I’m aware of” (audio - 4m). 
    • WSLCB Licensing Director Becky Smith later offered comments that under existing laws “retailers [have] to be open, fully operational, otherwise they open themselves up to forfeit.” Martinez said this topic connected to the group’s discussion on new license types because “we know how tough the producer/processor license is.” She hoped to develop “other avenues” for participation in legal cannabis by equity applicants (audio - 3m).
  • Brice reiterated his fears that applicants would have unrealistic expectations of their odds for success and the capital they’d be offered. Sherman noted some of his concerns were the purview of other task force work groups (audio - 3m). Brice felt producer/processors would “by far” face the greatest challenges to sustaining business. Sherman recognized his point, but found it better “to make it available to people and to support them.” He hoped to see more solutions for viability, especially for folks "at the bottom of that supply chain" (audio - 4m). Buchanan figured that Brice’s concerns would “be answered” by the ultimately unsuccessful HB 2022 (audio - 1m).

• The group debated the form of several possible new license types, most prominently social consumption, delivery, and “craft retail.”
  • Sherman invited the group into a broad-ranging exploration of potential license types they’d like to see for equity applicants. He asked for work group members to give feedback on social consumption and delivery licensure, as those had been previously discussed, before welcoming comment on new license types. Sherman hoped to end up with “some consensus around what would a delivery [or social consumption] license system look like,” how they might be regulated, and “important components that we should be keeping our eyes on as we develop it” (audio - 3m).
  • Social Consumption
    • Asai brought up whether such licensees would sell cannabis directly, or just allow on-site consumption. Sherman said it hadn’t been decided, but he could imagine “a business model both ways.” Brice felt on-site sales was the best option, and speculated it could “increase tenfold” consumer interest in an equity business (audio - 1m). 
    • Sherman suggested there could be a “special event license for on-site social consumption” at concerts and other events. He also felt businesses could be successful regardless of whether there were direct sales at a venue or not, what he termed a “commercial social consumption license” and a “non-commercial” license for businesses interested in allowing cannabis consumption without selling to consumers directly. Sherman also knew of interest from groups like the Advanced Integrative Medical Science (AIMS) Institute in “therapeutic cannabis use in particular” by patients in clinical settings (audio - 2m). 
    • Asai remembered that several unlicensed medical dispensaries in the state had “lounge like” areas for patient members, most selling medical cannabis (audio - 1m).
    • Brice agreed that consumption venues and events had been around Washington in an unofficial capacity “for years,” asserting that a “farmers market” model had emerged allowing sampling and consumption with too many people involved for authorities to “arrest everybody.” Brice suggested this was emblematic of why legalization had been approved by voters, and why he felt social consumption would be an effective way for consumers, producers, and retailers to connect (audio - 2m).
    • Swanson returned to Sherman’s call for temporary event licensing “like a beer garden,” with sales and use in a fixed area during an event (audio - 1m). Sherman asked what Smith thought of the idea, but Garrett confirmed she’d left the call (audio - 1m).
      • The WSLCB Licensing Division oversees Special Licenses and Permits for alcohol service at events, giving Smith unique insight into event licensing. People, businesses, and organizations can pay a fee to apply to authorize alcohol consumption at their events, from Farmers Market Authorizations, to Special Occasion Licenses, to various Permits, including:
        • “businesses that do not hold a liquor license to serve employees or invited guests at no charge.”
        • “donation by a manufacturer, importer or wholesaler for a trade association meal or reception event.”
        • “alcohol tasting by persons at least 18 years of age. Allows tasting (not consuming) of alcohol by persons who are at least 18 years of age, who are enrolled as a student in a class that is part of a culinary, wine technology, beer technology, or spirituous technology related degree program at a community,  technical college, regional or state university.”
        • Serving alcohol on the state capitol campus
    • Buchanan argued that on-site sales was the best model for social consumption, wondering if future licensees would also be permitted to sell food, or alcohol, or have other activities on premises. He suggested members would need to discuss how the smell might be received by “other businesses around.” Buchanan noted other equity programs with microbusiness licensing, saying some places had an “all-in-one type license that gives a social equity applicant that opportunity to have more than one way to win.” He admitted that these places often allowed “vertical integration,” which Washington didn’t, but the option could make equity businesses more viable (audio - 3m).
  • Delivery
    • Sherman hoped to distinguish between a “delivery service” without a retail storefront, and a retailer which was also allowed to deliver orders off-site. He said he’d seen a push to support “owner-operated businesses in the social equity space,” and felt “a cooperative approach to a delivery business” may be a good fit. Sherman didn’t want to see delivery limited to “providing a service for existing retail stores” (audio - 2m).
    • Brice appreciated that delivery could enable access in underserved “places that have bans” on cannabis retail. He then noted that officials in New York had gotten more “storefronts by these mobile trucks” which “acted as a storefront” that could travel (audio - 2m).
      • A trend of food trucks acting as mobile cannabis retailers, or ‘gifters,’ around New York City had existed for years but was informal and not regulated by the state.
  • Craft Retail
    • Responding to earlier comments, Martinez asked what constituted “craft retail.” Buchanan answered that some “micro licenses” combine license types, but he was unsure how craft retail would work absent an allowance for some level of vertical integration. He indicated there was already legislative opposition to what WA SECTF had recommended, which he considered merely “partial equity and equality.” Buchanan warned the work group to expect resistance to any new licensing models put forward (audio - 3m).
    • Brice was amenable to being a craft retailer, as he had been a grower in the medical cannabis sector. He was confident he could create dozens of brands and “no consumer would know the difference” from existing products (audio - 1m).
  • Mobile Licensed Premises (audio - 2m) 
    • Brice returned to the topic of mobile cannabis trucks in New York, saying acquaintances there told him five trucks “vertically control the whole market” for the city. Noting the expense of buying a storefront in the city, he liked the idea of a mobile retail outlet, and encouraged the group to look to other states for innovative license options.
  • Peddler's License (audio - 1m)
    • Sherman indicated that lawmakers in Chicago had considered a ‘peddler’s license,’ allowing limited cannabis sale on streets or in farmers markets. He felt the “interesting concept” was worth evaluating, saying an “independent operators license” could be the “lowest barrier for entry” to the cannabis sector.
      • Chicago licenses street peddlers and performers.
  • Nursery License (audio - 1m) 
    • Caitlein Ryan, The Cannabis Alliance Interim Executive Director and Board President, mentioned a business model to sell clones and seeds to adult consumers engaged in home growing of cannabis.
      • Adult cultivation, common in other legal cannabis states, was another recommendation the task force would consider.
  • Tiered Processing (audio - 2m) 
    • Brice suggested that tiering processor size similar to what was done for production tiers could help smaller equity businesses joining the industry find an appropriate location and be successful.
  • Discussion continued on new license types.
    • Mendoza wanted to better understand challenges of the current industry to inform assistance offerings before encouraging equity applicants to join the marketplace. He wanted any new license types to be for equity applicants exclusively "until we reach a level of…proportionality." Delivery and consumption licensing encompassed “a range of options,” Mendoza argued, for existing as well as new businesses. He finally mentioned craft production status, an idea which was unsuccessful as legislation in 2022. Sherman replied that HB 2022 had included a requirement that all new cannabis licensing be for social equity applicants only until 2029 (audio - 2m).
    • Morgan described how lawmakers wanted data on the impact of new license types that didn’t exist. She suggested surveying existing industry members to find out “exactly where are the loopholes, what’s working well, what’s not working well” (audio - 1m).
    • Buchanan called for more “outta the box" thinking, saying the state had “fallen into a slot of following what everybody else does” instead of being leaders on cannabis policy (audio - 2m).
    • Andre Felton, Herbal Help Center Owner, favored allowing producer/processors to have a “single storefront” for limited direct sales. He also thought limiting equity applicants to a “single storefront” instead of being able to own multiple retail locations would ensure more diversity in the cannabis sector. Felton also encouraged a “medical only” license, as well as having social equity licenses operate “tax exempt” similar to how tobacco was tax-exempt for some tribes (audio - 3m).
      • Tribes entering into cannabis compacts with the state were exempt from sharing some tax revenue.
    • Philip Petty, WSAACA Vice President, was amenable to any license type to enable “access into the industry” while “innovation and competition” remained up to a business owner. He expected applicants would research “all of the hurdles that you’re going to have to go over,” but the main point was creating access to the industry for those who had been disproportionately locked out of it (audio - 2m).
    • Zach James called for licensing cannabis security, noting a trend of cannabis retail robberies playing out in the state (audio - 1m).
    • Makoso was open to delivery licenses, but anticipated the “logistics of sorting that out here obviously would necessitate…a fair amount of debate.” Insofar as allowing producer/processors retail privileges, he pictured a system like vineyards instead of more retail storefronts, confident it would give those businesses a better chance to compete. Makoso additionally favored a possible endorsement to allow tours of facilities along with limited sales (audio - 3m).
      • People can visit licensed production and processing facilities today, provided they sign in, wear a visible ID badge, and sign out.
    • Buchanan liked the concept of a craft retailer with limited growing ability more than a producer with limited sales (audio - 8m).
      • However, Makoso said the idea would require addressing the “vertical [integration] concept” which was prohibited in Washington “at the moment.” He expected some existing producers or processors, and many retailers, “would have a big issue with that.” 
      • Buchanan said there would need to be a canopy constraint, and suggested producers and processors should be limited to sales of their own products. Makoso agreed, imagining the privilege would be limited to tier 1 and tier 2 producers. Sherman chimed in to reiterate that “independent ownership and independent operation” was also important to being a craft business. Buchanan felt that an “all-in-one” license for production, retail, and delivery were the most important new types to create for equity applicants. Makoso was in agreement, but suspected that dedicating licensing to social equity applicants was likely to “create some tension” with lawmakers opposing new cannabis businesses.
      • Buchanan felt that however craft licensing was approached by the social equity program, it would entail a form of vertical integration and meet resistance. Brice believed that would be the reason some stakeholders opposed new license types. Sherman said that for alcohol (“beer in particular”) there was an “exception to the limit on vertical integration for a very narrow type of business to do a very specific thing” and that this could be a model for new cannabis license types. Brice added that any current “retailer would want it,” and big growers would form “opposition on all sides” even if it was limited and termed “craft cannabis.”
    • Makoso confirmed “any new licenses created” and existing licenses would be reserved for equity applicants until 2029. Sherman said that was the recommendation from the task force and what had been in HB 2022 (audio - 1m).
  • Sherman closed out the discussion assuring the work group they’d take the comments and roll them into the “work group planning level” for future meetings. He invited those with feedback on new license types to contact Slaughter soon (audio - 1m).
    • The next work group meeting was scheduled for Thursday February 24th and would include discussion around “Non-storefront retail license types.”