WSLCB - Listen and Learn Forum - Incremental Expansion of Tier 1 Canopy
(June 23, 2020)

Here are some observations from the Tuesday June 23rd Washington State Liquor and Cannabis Board (WSLCB) Listen and Learn Forum on the Incremental Expansion of Tier 1 Canopy rulemaking project.

My top 3 takeaways:

• Policy and Rules Manager Kathy Hoffman started off the event by providing background on the rulemaking project and abbreviated introductions.
  • Revisions to the rules for tier 1 cannabis producers, who are currently permitted to grow 2,000 square feet (sq. ft.) of canopy, had been consistently discussed at WSLCB since the summer of 2019.
    • Director Rick Garza reported that the Washington CannaBusiness Association (WACA) recommended expanding tier 1 licenses from 2,000 sq. ft. to 15,000 sq. ft. in June 2019, which he described as “too high” (tier 2 production licenses are capped at 10,000 sq. ft.). The agency’s Cannabis Advisory Council (CAC) talked through canopy expansion with the Board as part of a discussion on ‘Smallholders Opportunities’ the following month.
    • In early October 2019, Hoffman reported that she planned to “withdraw and update” a CR-101 on canopy from late 2017 to incorporate adjustments to tier 1 producer rights after placing that rulemaking project “on hold” in April.
    • By November 2019, WSLCB considered including tier 1 expansion as part of draft agency request legislation which would tie increased canopy to acquisition of medically compliant endorsements for the resulting cannabis products. That same month, the Board rejected a petition to transform all tier 1 licenses into tier 2, with Hoffman assuring the Board that WSLCB was looking for “a way to increase business viability for tier 1s already.”
      • The agency request legislation, HB 2871 / SB 6603 - “Establishing a retail privilege endorsement to a marijuana producer license,” didn’t include an expansion in canopy and was not advanced past its initial policy committee hearing on February 3rd.
      • The WSLCB was previously instructed to increase producer canopy specifically for production of medical marijuana when SB 5052 was signed into law in April 2015. The session law updated RCW 69.50.345(1) to require applicants for producer licenses “to state whether the applicant intends to produce marijuana for sale by marijuana retailers holding medical marijuana endorsements and the amount of or percentage of canopy the applicant intends to commit to growing plants” that could be converted into cannabis products for medical patients. The revised law continued, “The state liquor and cannabis board must reconsider and increase limits on the amount of square feet permitted to be in production on July 24, 2015, and increase the percentage of production space for those marijuana producers who intend to grow plants for marijuana retailers holding medical marijuana endorsements.” It’s Cannabis Observer’s understanding that producers were granted additional canopy by WSLCB - but no effort was put forth by the agency to ensure producers complied with their stated intentions to “grow plants for [medical] marijuana retailers.”
      • In Washington state and at publication time, so-called medical cannabis products were required to undergo additional testing to obtain a special logo - and only a small fraction of overall cannabis products carried the Washington State Department of Health (DOH) endorsement.
    • Hoffman formally withdrew the original CR-101 proposing tier 1 changes in December 2019 before establishing the new CR-101 focused on Incremental Expansion of Tier 1 Canopy in WAC 314-55-075.
    • As the agency collected feedback, a listen and learn forum was scheduled for March 26th before being cancelled due to COVID-19. On April 28th, Hoffman announced that the agency was rescheduling two listen and learn forums covering different sections of WAC 314-55-075. The second forum was scheduled for Tuesday June 30th.
  • Hoffman changed the format of introductions from the last listen and learn session on May 28th. Instead of granting each attendee an opportunity to introduce themselves, she asked attendees to identify themselves in the WebEx chat. The webinar was not configured to enable participants to post messages for all attendees to see, an oversight Hoffman promised to address in future sessions. She subsequently noted there were 57 attendees.
  • Cannabis Observer identified the following WSLCB staff (audio - 2m):
    • Kathy Hoffman, Policy and Rules Manager
    • Casey Schaufler, Policy and Rules Coordinator
    • Audrey Vasek, Policy and Rules Coordinator
  • And the following participants were identified throughout the session:
    • Mark Ambler, Tier 1 Producers Association (T1PA) Founder
    • Brooke Davies, WACA Deputy Director
    • Drew Davis, West Seattle Marijuana Company Counsel
    • Shawn DeNae Wagenseller, Washington Bud Company Co-Owner (Tier 2 P/P)
    • Vicki Eneas, Licensee
    • Gregory Foster, Cannabis Observer
    • Shirley Grandell, Tier 1 license Co-owner
    • Gary Green, Vancouver Weed Company Principal (Tier 1 P/P)
    • Lukas Hunter, Harmony Farms Director of Compliance and Government Affairs (Tier 3 P/P)
    • Ryan Lee, Martin Davis PLLC Associate Attorney
    • Steven McCombs, MC2 Supply Principal (Tier 2 P/P)
    • Crystal Oliver, Washington SunGrowers Industry Association (WSIA) Executive Director
    • Joshua Rutherford, Dutch Blooms Principal (Tier 2 P/P)
    • Micah Sherman, Raven Co-Owner and Operations Director (Tier 2 P/P)
  • Hoffman went over the agency’s rulemaking process as well as the listen and learn format with attendees. The agency hoped to elicit what stakeholders liked and didn’t like in a highly structured format, and sought out suggested revisions to specific rules (audio - 12m).
• The review of the first five sections of the existing producer rules in WAC 314-55-075 resulted in an array of feedback.
  • WAC 314-55-075(1) - Definitions (audio - 2m).
    • Mark Ambler (audio - 5m). Ambler’s first suggestion was to allow for production to include fresh cannabis plant material as the “vitamins and minerals” offered “life saving benefits,” particularly for medical cannabis patients. He claimed the U.S. Drug Enforcement Administration (DEA) “administered licenses to grow sites and synthetic cannabinoid producers” and was concerned that state regulations “preclude us from...joining in that federal trade when countries like Canada are involved.” He advised removing “immature” from subsections (1)(a)(ii) and (iii) so that producers “could sell marijuana plants...to patients and cooperatives and also to researchers.” From there, Ambler said a new subsection, (1)(a)(iv), could be written to enable producers to sell "seed, plant tissue culture, and leaves, if it was federally legal, to anyone that the feds say we can."
    • Gary Green (audio - 5m). Green noted the producer definition “seems that it does limit their action of actually trying to provide to these medical patients because they’ve limited us access to those patients. We have to go through a store process...we’re competing in a different market.” He noted that limited vertical integration for tier 1 growers to sell directly to patients “similar to a boutique brewery setup” had been presented in legislation but wasn’t adopted. As a result, “the current wording in the law limits us from having access to actually address your concerns for access to medical patients.”
    • Drew Davis (audio - 3m). Davis indicated that a 20 foot separation requirement created “issues” for licensees co-located on the same parcel, particularly in eastern Washington “where there is a lot of large lots of land that is all correctly done to have many producers/processors on it.” This resulted in “20 foot gaps in between each producer that don’t end up maintained, they end up being a breeding ground for pests, and they cause a lot of problems.” Davis said the growers he worked with wanted “to close that gap.” He was also supportive of limited vertical integration if growers offered a “much more limited quantity to ensure that it doesn’t cause any loss of revenue for retail stores.” He shared wording with Hoffman while acknowledging that he didn’t “have a determined quantity in that language.”
    • Crystal Oliver (audio - 4m).
      • Oliver called attention to (1)(b) saying that the agency originally “wasn't going to allow production other than indoor production” but Oliver and others successfully lobbied to include outdoor and greenhouse production. She asked for revisions that would be “more thoughtful” in defining and differentiating the “classification” of producers. She suggested creating “a separate section that maybe talks about the security requirements.”
      • Oliver echoed remarks about ending the 20 foot setback and recommended that there not be fencing requirements “for outdoor grows that are contiguous and owned by a common licensee or business.” Similarly, she asked that such licensees be allowed “shared traceability and surveillance systems.”
      • Finally, Oliver told the agency that the “sight obscuring fencing requirement” turned fences into “wind sails” which were “vulnerable to damage” during storms and could result in injury to employees or neighbors. In addition, the fencing made the farms “conspicuous” and “since hemp legalization, cannabis plants are now being grown in full view of the public” so no public interest was “served by this requirement.” She offered revised language on the setback rule and said she’d follow up with wording for her other recommendations.
    • Joshua Rutherford (audio - 3m). Rutherford, a licensee and sole employee of a tier 2 producer/processor business in Ferndale, explained that he didn't have “a brand that sells in retail.” He asked that producers be allowed limited vertical integration to sell “a limited amount” directly to patients. Rutherford suggested WSLCB require a specific percentage of those licensees' production be dedicated to medically compliant products. As a former medical grower, Rutherford said it was “an invaluable experience for the medical patient to be connected to the farmer.”
    • Ryan Lee (audio - 1m).
    • Shawn DeNae Wagenseller (audio - 3m). Wagenseller agreed with others that fresh cannabis plants “are beneficial to medical marijuana patients” and confirmed “there’s no way that we can bring fresh material to the market at all right now.” She noted that the agency was “looking at pesticide and heavy metal” testing in the quality control rulemaking project in addition to the DOH testing rules for compliant products. Wagenseller called for DOH’s involvement in any medically-focused expansion of tier 1 producers. Further, she questioned if the smallest tier of growers would “better provide [DOH] compliant product” as that was possibly “an incorrect assumption.”
    • Gary Green - continued (audio - 2m).
  • WAC 314-55-075(2) - Application Fee (audio - 1m).
    • Mark Ambler (audio - 1m). Feeling the fees in the existing rules were “arbitrary,” Ambler asked to change the section’s first sentence to read "The application fee will be cost-based and determined by the LCB." 
    • Micah Sherman (audio - 3m). Sherman said that ”some of the stuff in the rules is directly” out of the Revised Code of Washington (RCW), including fees mentioned in sections (1)(a)(i), (ii), and (iii). He pointed out that any changes to these sections would need to be passed “through the legislature.” Sherman hoped attendees would appreciate “what is and isn’t under the purview of rule changes...because we’re spending a lot of time talking about stuff that needs to be changed in law.” He urged greater legislative engagement from interested parties.
    • Gary Green (audio - 3m).
    • Lukas Hunter (audio - 3m). Hunter was in agreement with the idea of allowing licensees to “move up in canopy if they want to go through a [tier] change request.” He suggested the agency cap tier changes overall to “the state canopy limit.” As a former Canopy Team Manager at WSLCB, Hunter said he’d seen more licensees producing “around half of their total canopy” in order to “keep up with market constraints.” He argued that the agency had the power to limit licensee canopy space already in the event of “overproduction issues” so adding the option to increase grow space would be a “fantastic opportunity.”
  • WAC 314-55-075(3) - Annual Fee (audio - 1m).
    • Mark Ambler (audio - 5m). Ambler asked that license fees be reflective or tier and the amount of sales, a concept he’d advocated before lawmakers earlier in the year. In 2019, Amber said he’d produced “about 40 pounds of sellable marijuana...there are people who are producing 40 pounds a week, there are people probably producing 40 pounds a day.” Ambler asked for fees that were “cost-based.” Hoffman wondered how WSLCB would “operationalize” that practice and Ambler advised tracking inspection times and agency expenses by tier.
    • Shirley Grandell (audio - 2m). Co-Owner of a tier 1 license with Silviano Sanchez, Grandell said that they disliked having “to pay the LEAF [Data] Systems” in addition to a “third-party company in order to register or, you know, log all of your stuff.” She called LEAF “not user friendly” and argued that the rule shouldn’t require them to pay a fee for both.
      • In the original initiative, the renewal fee for licensees was $1,000. In 2017, SB 5130 attached a one-time fee of $480 to be used “for the replacement of the state liquor and cannabis board's traceability system” as well as a continuing $300 license fee increase. In 2018, HB 2334, legislation regulating cannabis additives, increased the fee again by $81 to pay for cannabidiol (CBD) testing. See WSLCB’s fact sheets for each bill.
    • Micah Sherman (audio - 2m). Referencing optional criminal history checks in RCW 69.50.331(1)(a) and “given the larger conversation going on right now about social equity,” Sherman asked that the agency “revisit” the topic and re-evaluate its rules and policies about applicant “criminal history related to marijuana offenses.” Noting that this could require legislative action, he felt any law about cannabis licensing should “go out of our way to be inclusive to people that had relevant marijuana offenses in their past.”
      • While state law says WSLCB "may consider any prior criminal arrests or convictions" of applicants, the agency chose to create rules for criminal history checks. One declared they "will conduct an investigation of the applicants' criminal history" and another says WSLCB will investigate "all applicants' marijuana law or rule administrative violation history." However, other rules more leniently explain "a criminal background check may be required" or the agency "may not issue a marijuana license" to those with certain criminal or administrative offenses on their record.
    • Gary Green (audio - 4m). Green concurred with the observation that “generic felony” constraints in the rules may necessitate legislative changes. Additionally, he felt that annual license fees should be “separated based on tier.” Green pointed out "kind of a prejudice against marijuana" as the state’s “average licensing fee is between $295 and $595” while the annual cannabis license fee was $1,381. The disparity “should be addressed,” he concluded. 
    • Micah Sherman - continued (audio - 1m).
    • Ryan Lee (audio - 1m).
    • Shawn DeNae Wagenseller (audio - 4m). Wagenseller claimed that exemptions for prior cannabis convictions were “already part of rule, we had a marijuana conviction in the 80s and I put it on our application.” She was similarly critical of the on-going fee “when we changed from BioTrack to LEAF” since "everybody I know uses a third party." She asked “does the LCB really need” a fee from all licensees solely “to maintain LEAF”? Wagenseller was amenable to variable fees, but cautioned that basing the amount on sales or weight would be “problematic.” Instead, she pushed for the fee to be based on tier size as that would be “clean and easy.”
      • At publication time, MJ Freeway, the vendor of the State’s centralized cannabis traceability system, charged the state $50,000 per month to host LEAF Data Systems.
    • Vicki Eneas (audio - 3m). Eneas said she understood that during the transition to LEAF fees were raised “$500 a license for a one-time fee increase...but they never went back down for our licenses.” Hoffman said she was “happy to” follow up with Eneas on license fees.
  • WAC 314-55-075(4) - Application Window (audio - 1m).
    • Ryan Lee (audio - 2m). Lee recommended that WSLCB “reopen the ability to apply for new licenses at least to current licensees in good standing” with the agency. He was open to limiting the amount or size of the new licenses but said giving current licensees the first chance at new licenses would be “another way to help any smaller producers.”
    • Shirley Grandell (audio - 2m).
    • Shawn DeNae Wagenseller (audio - 2m). Though sympathetic to tier 1 producers who “don’t feel able to create a viable business,” Wagenseller was more concerned about increasing canopy. She said that WSLCB’s licensing division had told her there were “nearly 1,400” producer licenses as of November 2019. Wagenseller believed a significant amount of canopy was not in active production and that “reallocating” from those "holding licenses in speculation” and who “haven’t paid" taxes or contributed economically was a better place to find canopy “up for grabs."
    • Lukas Hunter (audio - 1m). Hunter advised striking “this entire section and leave it to be more of a policy issue at [WSLCB] rather than bound in rule.”
    • Gary Green (audio - 2m). Feeling this section gave “very damaging power” to the agency, Green warned they could expand the market too quickly “and literally make all of us lose our businesses.” Claiming this had already occurred with alcohol, he said “the wording should be replaced to where [WSLCB] can allow licensees to purchase more licenses or allow them to increase the canopy with input from the industry.” He noted that the Legislature had authorized WSLCB “to reopen retail licenses for African American and other minorities" which he believed would impact existing retailers - “and the same thing could happen on the producer/processor side.”
    • Joshua Rutherford (audio - 1m).
    • Mark Ambler (audio - 3m).
    • Drew Davis (audio - 1m). Davis suggested “proposed language that says the LCB still has the power to allow the window to reopen, however, they can’t do that in a way that would increase the state’s maximum canopy limits.” He called this a “meet in the middle” approach that wouldn’t remove the agency’s control of licensing windows.
  • WAC 314-55-075(5) - True Parties of Interest (TPI, audio - 1m).
    • Ryan Lee (audio - 1m). Lee called for increasing the number of licenses TPIs could hold. Though RCW 69.50.325(3)(b) limits TPIs “in the aggregate, to holding a collective total of not more than five retail marijuana licenses,” Lee said the limit of three producer and processor licenses for TPIs was an “LCB construction” in rule and could be changed. His suggested increase would allow businesses to “take on more licenses if they’ve already proved they’re successful and can make it work.”
    • Shawn DeNae Wagenseller (audio - 1m). Wagenseller was supportive of increasing the number of production/processing licenses individuals could hold “as long as those licenses are not new-issued canopy.” A limit of five licenses for TPIs as “parity” with retail was acceptable to her.
    • Drew Davis (audio - 1m).
    • Gary Green (audio - 1m). Green echoed others who backed an increase in the number of licenses producer/processors could hold. However, he estimated that a tier 1 licensee buying another existing license would pay $75,000-$200,000 “instead of going to LCB, and seeing that there’s unused licenses, and being issued a new license for $1,300.” Green felt tracking a canopy limit was reasonable but having to buy a license from another party “increases the cost dramatically.”
    • Crystal Oliver (audio - 1m).
    • Mark Ambler (audio - 1m).
• Hoffman concluded the session by sharing next steps for the rulemaking project and encouraged continued engagement.
  • Hoffman expressed her gratitude to those who’d participated. Following a request from Ambler for the agency to “identify who are tier 1 producers on this” call, she asked that those producers email her or her office.
  • Curating comments would "take us a few weeks" given that they’d wait to compile them after the Tuesday June 30th listen and learn forum on the second half of the producer rules.
  • Hoffman also noted that her team would be adapting to a “compressed” work week as WSLCB workers would be furloughed on Mondays for the next month. Once feedback had been organized, the agency would look to develop proposed rules for the project’s CR-102 (audio - 2m).