WACA - Spring Meeting - 2022 - WSLCB Engagement
(June 15, 2022)

Here are some observations from the Wednesday June 15th Washington CannaBusiness Association (WACA) 2022 Spring Meeting.

My top 5 takeaways:

• Breakout sessions were arranged so that sub-groups of conference attendees rotated through tables where Washington State Liquor and Cannabis Board (WSLCB) staff and some other officials spoke about their work while responding to attendee comments and questions.
  • Cannabis Observer Founder Gregory Foster was assigned to the session’s ‘blue group.’
  • Earlier, Board Chair David Postman shared insights at the outset of the conference. At the WACA Fall Conference in November 2021, Director Rick Garza gave a State of the Agency speech followed by audience questions.

• At the WSLCB Enforcement table, Director of Policy and External Affairs Justin Nordhorn spoke about agency priorities and cannabinoid regulation.
  • Nordhorn relayed that he was “filling in” for his former division as staffers had been unable to attend, candidly admitting he’d share what he knew about “what they have but I probably won’t be able to give you…definitive answers to everything” as he wasn’t involved in Enforcement activities “on a day-to-day basis” anymore.
    • According to the event agenda, WSLCB Enforcement and Education Deputy Chief Ronald Rupke had been scheduled to attend.
  • Jordan Zager, Dewey Cannabis Co. and Dewey Scientific Owner and CEO, asked when he moved to his current post. Nordhorn answered that he’d “transitioned to this role in February of [20]21,” though he’d done “a lot of policy stuff before that” for the board. In his contemporary role, he oversaw the Policy and Rules team in addition to Public Health Education Liaison Mary Segawa. He explained, “I’m looking at trying to expand in a number of different areas, I’m trying to bring a researcher on and those types of things” as he believed the post could assist agency leaders trying “to create either new law or new rules, or approaches” for agency activities.
    • Trecia Ehrlich had been a Research Consultant for WSLCB prior to taking a position with the Washington State Department of Agriculture (WSDA), assuming the role of Hemp Program Manager in July 2020. At WSLCB, Ehrlich assisted in early research on cannabis social equity policies and gathered data for WA SECTF. Later during the WACA conference, she presented on behalf of WSDA.
  • Joseph DuPuis, Doc and Yeti Urban Farms Owner and WACA Trustee, asked for the “top three policy issues that you’re dealing with today.” Nordhorn named two:
    • “Social equity…a really complicated area. It seems like it can be simply done…in a number of people’s minds, but there’s so many layers that to do it right and to get it right” was a challenge as they hoped to ensure a modicum of success for eventual equity licensees.
      • Find out more from the Washington State Legislative Task Force on Social Equity in Cannabis (WA SECTF) and a briefing on WSLCB social equity efforts by agency leaders from April 6th.
    • “The delta-8[-tetrahydrocannabinol] issue is another top policy area,” Nordhorn indicated, claiming that local officials approached them and said “all this stuff is available in our corner stores, what are you gonna do about it?”
      • Clarifying he meant all unregulated cannabinoids, Nordhorn was asked what was being done by Enforcement “to curb all that.” He cited a 2021 policy statement on cannabinoids in legal cannabis items, “rulemaking right now,” and evaluating “what out of the bill from last year would be appropriate to put into a rule.” While not mentioning the prominence with which WACA leaders worked against bills favored by the board, Nordhorn attributed the failure to having “to meet a lot of different interest points” on “very technical” legislation tough to move “out of the short session.” He commented that staff remained interested in measuring “total THC” in products and cannabinoids that “may be impairing,” naming hexahydrocannabinol (HHC) as another compound of concern he called an “outlier” in terms of definition.
      • Yung Tan, MFUSED Co-Founder, inquired about THC-O Acetate specifically, noting it was made with “the same process that you take going from opium to heroin” and had been “shown to bind” to cannabinoid receptor type 1 (CB1) more strongly than THC. He claimed “there’s preliminary research coming out right now that it is in fact shutting down the central nervous system and I believe there was a THC-O death, so technically an overdose.” Nordhorn said THC-O was an “artificial cannabinoid” already banned under state law, though the distinction between artificial and synthetic cannabinoids was complex. He agreed that regulators wanted to stay clear of any artificial compounds.
        • Cannabis Observer failed to identify a source verifying an overdose death attributable to THC-O, though there was general consensus that the compound lacked a profile for safe use.
      • Jim Makoso, Flowe Technology CEO, Lucid Lab Group Director, and a Washington State Legislative Task Force on Social Equity in Cannabis (WA SECTF) appointee, raised a familiar topic: what cannabinoids Enforcement considered to be “impairing.” Nordhorn replied that they’d gotten so much “pushback” on their effort to define impairing that they would instead focus on an “appropriate cutoff.”
      • Agency representatives hosted several deliberative dialogues centered on cannabinoids and potentially impairing products with the aim of developing legislative and rulemaking proposals, most recently on June 21st.
  • Tan felt the Washington state cannabis industry had “struggled” and claimed that people were making “far more money” in other states with regulators that “help the industry thrive” while supporting vertical integration. He wondered what Enforcement could do to help businesses like his be more “sustainable” and voiced frustrations that prioritizing social equity and cannabinoid regulation “doesn’t help our bottom line, doesn’t help us stay in business.” Nordhorn promised to circle back with him, but felt the Enforcement division’s mandate was to “consider harm reduction issues and regulate production” rather than “economic viability/sustainability.”

• Becky Smith, Director of Licensing, and several members of her team heard concerns about service consistency, social equity, vertical integration, and private labeling.
  • Smith was joined by “new” division Cannabis Manager Linda Thompson and Compliance and Adjudications Manager Nicola Reid. Smith said that she was “also the lead for social equity for the agency.” She had copies of updated licensing forms because “we heard from” WACA members at their November conference that “simple change requests” were taking too long, so there was now a dedicated form that could be processed by her staff much faster. Smith mentioned they’d also combined “product approval” forms. Her hope was that with a “new licensing system,” change requests could “become much easier over time” once the systems modernization project (SMP) was completed. Smith noted her team had been “at it for five years” trying to complete the SMP, and the agency received millions of dollars in their budget for fiscal year 2023 to try to finish it.
  • Tan mentioned the biggest regulatory issue for his business was “the inconsistency in how long it takes to get approval for certain things” like an “assignment on a lease” which was taking “months to get approval” while other requests were “really fast.” Smith responded that their change form should help that issue and Thompson offered that it could be a matter of whether a change request involved staff vetting “capital investment” for new equipment to ensure compliance.
  • Makoso agreed that change approval lacked consistency although he’d “seen improvements” over time. He was curious about Smith’s role in social equity at WSLCB. He noted the failure of a bill to enact WA SECTF recommendations during the 2022 session and wondered if agency staff would make a statement on “your stance on the new social equity licenses, the existing ones” or new license types like those discussed by the task force Licensing Work Group. Smith answered that those conversations were just starting for the 2023 session, and WSLCB leaders were considering agency request legislation while being curious what industry groups like WACA would put forward. It was “too early” for her to be certain whether the board would request a bill with more cannabis licenses or weigh in on a proposal from another source.
  • Mark Olson, Quincy Green Co-Founder, asked about “inactive licenses” and Smith replied that it was contingent on license type. For retail, inactive licenses went into a pool for eventual social equity applicants, she remarked, pointing to Postman’s remarks on why they’d delayed the Social Equity rulemaking project and when it would resume. Smith reported that staff were digging more deeply into two state equity programs that used race-based considerations in their licensing processes. For her division to reclaim producer or processor licenses due to inactivity, they would need legislative approval, she added.
  • Peter Manning, Black Excellence in Cannabis (BEC) member, asked whether it was true there were “200 producer/processor license[s]” on “standby.” She responded that it was true many had “stopped operating” but WSLCB officials would need a legislative mandate in order to re-offer those licenses for social equity applicants exclusively.
    • Manning offered public comment to WSLCB on June 8th and on June 22nd.
  • Tan asked about vertical integration in the cannabis market, arguing it was permitted in other jurisdictions. Reid said wholesale/retail separation had been part of Initiative 502 which reflected “the manufacturer/distributor/retail market for liquor” intended to keep people from “corner[ing] a market.” Olson termed this akin to alcohol “blue laws” and voiced skepticism that it was needed in the cannabis sector.
  • Jeff Freeman Jr., MFUSED Co-Founder, was curious whether “private labeling by retail” could be interpreted as a form of vertical integration. Reid acknowledged legislation about contracting intellectual property for a percentage of sales. Attendees agreed that private labeling was generally regarded to be vertical integration favoring a retailer’s branding and a “non-winning proposition” for producers and processors. 
    • Chris Marr, Marr Government Affairs Principal Lobbyist and a WACA member, provided comments to the board on “private labeling” in May 2018 following denial of his rulemaking petition on the topic. Marr lobbied for and succeeded in passing HB 1794 in 2019, which concerned “royalty and licensing agreements relating to the use of intellectual property.”
  • Mike Asai, Emerald City Collective Gardens (ECCG) Co-Founder, asked when the social equity licensing window at WSLCB would begin. Smith told him her division was “ready to roll in September” but the actual date was dependent on completing rulemaking, probably “this fall.”
    • At the June 21st board caucus, Hoffman forecast a revised CR-102 could be ready for “either the first or second board meeting in July.”

• A question about the top priorities for WSLCB leadership led to more conversations on social equity, cannabinoids, and enforcement.
  • Postman was joined by Sheri Sawyer, a Senior Advisor to Governor Jay Inslee, and Senator Rebecca Saldaña, a WA SECTF appointee. DePuis raised the question of agency priorities and how WACA members could work together with WSLCB staff on them.
    • Postman named social equity and cannabinoid regulation as the top two topics under consideration by staff, but also mentioned canopy measurement, quality control (QC) testing rules, and testing lab compliance as areas they wanted to focus on.
    • DePuis pressed on disagreements between licensees and regulators, and asked how they could find “common goals” to make some progress, even if neither group got “a full win.” Postman had found that “everybody agree[d]: take [cannabinoid items] out of the gas stations” but even that was controversial due to the “many sides” interested in the topic, from partisan legislators to unlicensed hemp businesses. He added that the topic had grown from being focused on unregulated delta-8-THC products to include several cannabinoids. While Postman thought “we could have done it” with legislation backed by WSLCB in 2022, he expected there’d be new legislation on the matter in 2023 since agency staff “can’t ban anything” themselves. DuPuis wanted quicker action once legislation was enacted as “it’s snowballing out of control.”
    • Vicki Christophersen, WACA Executive Director, joined the conversation to suggest that members felt two “distinct” issues had become conflated during the 2022 session:
      • A bill saying “you cannot sell this stuff outside of the regulated market” which she felt could pass “the first week of session.”
      • The “harder” issue was how regulators handled “cannabinoid[s] and cannabinoid science.”
  • Tan returned to the plight of existing cannabis companies, noting social equity applicants “may not want” to actually compete in such a difficult sector. Remarking that MFUSED was a minority-owned business also operating in Arizona, Tan noted that had been “easier” than running a Washington cannabis business where it was “hyper competitive” and had less consistency in enforcement. He shared his concern about equity in cannabis licensing as “probably one of the largest minority cannabis companies in Washington state.” Tan insisted that cannabis prices in the state were “the lowest in the country” and another group member pointed out the state had the highest taxed products in America.
  • Olson asked about cannabis canopy and how it “was being enforced” following a change in measurement policy by agency representatives in January. Postman answered that staff were still debating appropriate enforcement of canopy “internally, a lot.”
  • Manning asked whether social equity retail licenses would be “mobile” anywhere in the state. Postman replied that the board didn't have authority to allow for mobility outside of the county where the license was allotted, which Manning felt hindered their potential. Postman considered it to be a large request that the legislature remove local authority to create bans or moratoriums on cannabis businesses, and worried the state would “end up further behind than we are today” if an equity program was struck down by the courts.

• At the final table, the group engaged with Policy and Rules Manager Kathy Hoffman on challenges in the WSLCB rulemaking process, the social equity program, and upcoming rulemaking efforts.
  • DePuis started off by inquiring what Hoffman saw as her “biggest challenges in the rulemaking process.” Hoffman said “that’s a loaded question,” drawing laughs from the group. DePuis agreed it was “open ended for you” and commented that WACA members “want to see [rulemaking] action, and we want to see rules done in the right way.” 
    • The first challenge occurring to Hoffman was “when folks aren't familiar with the rulemaking process” because it was a system “all dictated by statute.” People had a “perception that all you gotta do is call LCB and say ‘change a rule.’ Well, there’s quite a bit more to it than that,” she told attendees.
    • The Administrative Procedures Act (APA) set timelines and requirements for “tasks that the agency has to undertake in the process of that development,” Hoffman observed, and with cannabis policy “all of this is new…we’re the pioneers in regulatory innovation here.” She recognized that any rule carried a “regulatory burden” before remarking that some licensees “are probably thinking ‘all of your rules are regulatory burden.’” But her team had to do their best to assess when rules would have direct costs for businesses.
    • Hoffman thought “a great example of that” was mandatory pesticide testing rules adopted by the board on March 2nd after years of development produced multiple small business economic impact statements (SBEIS) and rule analyses. She’d previously worked at the Washington State Department of Health (DOH) which “had, like, three” economists on staff so any SBEIS could be produced in-house. Hoffman noted WSLCB had to contract with an economist for each SBEIS, another process with various requirements, and the SBEIS “can take a while to do…sometimes it takes six months” to survey stakeholders or compile information. Moreover, “we’re looking at the compliance costs,” she emphasized, “we’re not looking at the entire economic environment.”
    • Tan was curious to know if more funding for economic research was something WACA members should lobby legislators for, but Hoffman thought the problem there was “finding an economist that specializes in cannabis…because it's a new industry.” She noted agency leaders had “found a group of economists that actually specialize in this, so we’re good.”
  • Foster asked for more detail on Hoffman’s past statements about needing “more research and analysis” on the social equity rulemaking project. She “deferred” to licensing staff who were “making sure the legislation was being implemented in the spirit of the legislation in which it was created.” She commented that since the “summer of 2020” when she began her role as manager of the team, “my lens has always been social equity” which she argued was something staff hadn’t been accustomed to evaluating. Hoffman’s policy development used a “metric” that included diversity, equity, inclusion, and belonging (DEIB) and applied it to all petitions for rulemaking her team received and rules her team created. “Will this rule change result in socially equitable conditions” was “at the forefront of my mind,” she indicated, even if it was “a little longer process.”
    • Hoffman talked about the WSLCB policy development process at length with the board in October 2021.
  • Foster also inquired about future rulemaking, something Hoffman had given more attention to in the preceding months.
    • “For advertising we’re really thinking about the current environment because the last time those rules were changed was 2018,” she said, arguing that in 2022 “we’re doing a lot of things in a lot of different spaces that we weren’t before.” She wanted to look at social media advertising specifically but the whole chapter would be opened, although section (2) of the advertising rules covering outdoor advertising was under litigation and wouldn’t be opened for revision.
    • Tan called the advertising rules “archaic” and restrictive. Hoffman agreed they needed to “modernize” them in “a socially equitable way.” Some thought those subjects weren’t connected, he replied, “you’re trying to create a fair situation for everyone, but the world is not fair, fundamentally.” Tan felt it was “a non-starting scenario to create a fair situation in, and so you’re actually hurting the brand.” In his view, “trying to create an even playing field for people to sort of operate fairly just goes back to the fact that we live in a capitalistic society.”
    • A different approach Tan suggested was ensuring “social equity position at retail shelf space, so not just giving someone a license but making sure they’re in the damn store.” Coupled with the challenge of building “community and brand,” which he also thought the system wasn’t incentivizing, “it’s not a winning situation, period.” Hoffman responded that Tan’s concerns needed to come up when they were engaged in rule development.
  • Hoffman expected to move to a “world café” model of stakeholder engagement, as it was “more of a workshop model.” Listen and learn forums had been most effective “live,” but once agency rulemaking “went virtual, I hated it” as she lost the in-person “dynamic.”
  • As the circle closed, Asai wanted to know when social equity rules would be ready for public review. Hoffman suspected it would be presented to the board on July 6th and they were doing “everything we can” to make sure the resulting CR-102 led to “socially equitable conditions.”