WSLCB - Board Caucus
(August 6, 2019)

Here are some observations from the Tuesday August 6th Washington State Liquor and Cannabis Board (WSLCB) Board Caucus.

My top 3 takeaways:

• Staff talked about their experiences at the Washington SunGrowers Industry Association (WSIA) Annual Meeting (audio – 21m).
  • Board Member Russ Hauge and Policy and Rules Coordinator Kathy Hoffman attended WSIA’s Annual Meeting in Omak on July 19th and toured several outdoor farms the day before.
  • Hauge led by saying the “number of harvests annually is a really critical factor” because outdoor growers “still have to work [their] tail off to get two harvests a year.” Even for large Tier 3 producers, he observed this was a limiting factor compared to indoor operations which grew year-round. Hauge said the number of harvests per year should be considered as the agency defined criteria to institute “some protections before corporate investment comes.” 
  • Hauge learned about a “class of business people who style themselves as ‘brokers’” contacting producers and processors to “arrange sales for them with a variety of different contractual arrangements.” Hauge and Hoffman both felt it was a “niche” of the distribution market that sounded “predatory.” Nonetheless, Hauge didn’t see an immediate “enforcement avenue” and was wary of attempting broad prohibitions. Hoffman concurred, and referenced contract indemnity language she’d seen as “disturbing.” Both agreed it was a “symptom” of market troubles, with Hauge adding “we need an economist or someone with market savvy in our shop” to help the Board evolve the marketplace.
  • Hauge heard from two larger growers who told him their sole marketing plan was to get into Seattle retail stores because statewide marketing wasn’t viable. Board Member Ollie Garrett wondered if those comments indicated a larger trend which could explain why some types of products remained unavailable around the state. Both Hoffman and Hauge repeatedly heard growers say farmers markets “would be a real savior.”
  • Hauge committed to trying to “preserve” outdoor cultivation because “that’s where a lot of the interesting things regarding strains, and the genetics that’s available” were happening as well as innovative growing methods. He was opposed to a state market where only year-round indoor production was successful, and felt that scenario would be “a real tragedy.” 
  • The agency’s observations in the field will inform the current challenge to define small or craft cannabis businesses. Hauge was leaning away from definitional criteria such as tier size and towards number of harvests, amount of production, type of grow, and “other factors.” He remained opposed to a distribution tier but acknowledged the “barriers to vertical integration” built into law and regulations.
    • Craft cannabis was one of five scheduled topics during last month’s Cannabis Advisory Council (CAC) meeting.
  • Hoffman appreciated the “different sustainability practices” of outdoor growers, particularly growing with little or no pesticides. Hauge noted that the presence of pesticides in cannabis products, even at approved action levels, could be perceived as a strike against the producer – even if they didn’t use that pesticide during cultivation as outdoor production was more subject to drift from neighboring agriculture.
  • One idea first introduced at the CAC was creation of a nursery license endorsement for smaller farms to provide genetics and seedlings for larger producers. Hauge pointed out that while there was nothing in rule which prohibited the practice, there was “nothing to really support it and to promote it.” Board Chair Jane Rushford asked Hoffman to learn from other states and see what the agency could do. Hoffman may explore the topic at the next Regulators Roundtable of legal states.
  • Hoffman’s final observation concerned “multiple licenses for one entity,” a rule change obliquely requested by petition in July. She visited one site with three grows next to one another, each requiring barriers and separate video surveillance. Hoffman felt any rule change to encourage consolidated business efficiencies would hinge on “what the three pieces of land next to each other look like and how they’re managed under our current regulatory structure.”
  • At the end of the conversation, Hauge added a somewhat shocking admission: the labor-intensive practice of individually tagging plants “is important only because we say it is” and may not be necessary to track production. In addition to the challenges the WSLCB has had with its traceability vendor MJ Freeway, the agency cannot technically trace product from “seed-to-sale” because plant-specific identifiers are lost during the harvest process. Hauge stated, “I think it’s incumbent upon us to evaluate whether that work is really necessary, is there some better way to do it?”
  • Rushford asked for a breakdown of the issues they’d heard and what it would take to implement change. Hoffman stated that she’d already been corresponding with WSIA’s Executive Director Crystal Oliver to create a table summarizing “here’s the issue, here’s our current rule, here’s what other states have done, here’s what we can do.” Hoffman planned to recruit Research Consultant Trecia Ehrlich to help prioritize assistance requested by outdoor producers.
  • Thank you to WSIA for sharing presentation materials from their annual meeting:
    • WSLCB – “Cannabis Legalization Implementing the world’s first system of legally growing, processing and retailing cannabis” by Hauge and Hoffman
    • Washington State Department of Agriculture (WSDA) – “Worker Protection Standard (WPS) Requirements for Employers” by David Bryson, WSDA Pesticide Management Division
    • Cannabis Observer – Presentation (video) by Gregory Foster
• Policy and Rules Coordinator Kathy Hoffman provided a rulemaking update to the Board (audio – 14m).
  • Hoffman’s last rulemaking update was presented during the July 17th CAC meeting.
  • Cannabis Penalties (WSR 18-22-099). Hoffman said the agency was preparing a final internal meeting before releasing draft conceptual rules around August 15th. A listen and learn session would follow on August 29th, the first of up to three events. She anticipated filing a CR-102 by mid-October.
  • Voluntary Compliance Program (WSR 19-15-074). Hoffman hadn’t received any written comments on the effort to implement parts of SB 5318 to prioritize education over enforcement. The agency posted an announcement soliciting written comments that morning.
  • True Party of Interest (TPI, WSR 18-22-054). Hoffman confirmed an industry workgroup meeting was slated for August 12th. Drawing on her experience at the Regulators Roundtable, Hoffman confirmed all legal states were experiencing challenges around the definition of “control.” Hoffman maintained her intention to align the TPI changes with the filing of the CR-102 on Cannabis Penalties and praised the feedback she’d gotten from industry partners so far.
  • Quality Assurance (QA) Testing and Product Requirements (WSR 18-17-041). Hoffman said the listen and learn session scheduled for August 22nd remained on track. Updated draft conceptual rules would go out to stakeholders later in the week, as well as better framing for the structure of the listen and learn sessions themselves. The CR-102 was unlikely to be drafted before early November as the agency planned to coordinate with the Department of Ecology (DOE)’s Cannabis Science Task Force. Hoffman noted that the Department of Health was “invited to the table” but they were “waiting to see” what WSLCB put forward.
  • Packaging and Labeling (PAL, WSR 19-12-029). Though Hoffman had received a lot of feedback on the current rules, she considered some claims about the costs of changes to be “unverified.” Hoffman suggested a big component of future PAL changes would be “increasing education” based on conversations with Oregon and Colorado regulators. Listen and learn sessions on the rules were planned for September. Hoffman was particularly interested in “engaging our prevention community” as they seemed unfamiliar with “meaningfully” engaging in the agency’s processes. Rushford said that she was working with Director Rick Garza to coordinate and elevate prevention efforts across state agencies. Hoffman added that she was working with WSLCB’s Public Health Education Liaison Sara Cooley Broschart to consider how best to proceed. She also mentioned that the on-the-road meeting planned for Bothell would amend board interim policy BIP 05-2018 to allow retailers more time to sell off products in older packaging. This would go beyond the deadline extensions the Board approved for several BIPs last month.
  • Vapor Product Rules (WSR 19-13-036). Hoffman explained that the vapor rulemaking project to implement HB 1874 and HB 1074 hadn’t drawn any public comment so far and would incorporate the new penalty structure. She planned to meet with Enforcement regarding the rulemaking project at the end of the month.
• The Board discussed municipal interest in more retail stores, planned meetings, and the inscrutability of some intellectual property (IP) contracts.
  • Garrett said she’d recently read the Everett City Council was considering lifting a self-imposed limit on cannabis retail, potentially doubling the number of stores from five to ten, a move the Council considered in depth last year (audio – 6m).
  • Executive Assistant Dustin Dickson promised to have the venue for the Bothell prevention meeting settled by the end of the day, having narrowed the choice down to facilities at Cascadia College or the University of Washington Bothell. Cannabis Observer inquired if this meeting will be open to the public (audio – 4m).
  • Rushford mentioned the ongoing Cannabis 2.0 project, telling the group that she had meetings scheduled with five agency directors who dealt with cannabis policy, including the DOE and the Health Care Authority (audio – 1m).
  • During Dickson’s update, Hauge mentioned Cannabis One’s recent share purchase agreement for Green Lady IP, and encouraged the Board to “dive in” to “look at the language that was used to describe the relationship between the two parties.” He felt the agreement between the Canadian holding company and the Washington retailer “shows you how complex these arrangements can be.” Hauge admitted, “I didn’t understand it, myself, and no reason I should” but felt the agency needed to understand these kinds of agreements because “that’s the wave of the future.”