WSLCB - Board Caucus
(December 10, 2019)

Here are some observations from the Tuesday December 10th Washington State Liquor and Cannabis Board (WSLCB) Board Caucus.

My top 3 takeaways:

• WSLCB Policy and Rules Coordinator Kathy Hoffman brought the Board up to speed on the agency’s open rulemaking projects and a new petition from outdoor cannabis farmers.
  • Hoffman last rulemaking update was during the November 26th Special Board Meeting.
  • Packaging and Labeling (PAL, WSR 19-12-029, audio - 7m). Hoffman said the public hearing on PAL proposed rules would occur during the board meeting the following day, December 11th. Cannabis licensee comments had resulted in a “small edit” and “clarification comments” in the rule set. Responses from the prevention community “which we were looking forward to receiving” largely focused on the “controversial topic” of “various approaches” and “opinions” on cannabis PAL. Hoffman predicted “we may hear some of those comments tomorrow.”
    • Hoffman described the bounds of the current PAL rulemaking project for the Board: “one thing to remember is that these rules had a three-pronged approach.”
      • The rulemaking project was catalyzed in part by two petitions from the Cannabis Alliance on packaging waste which the Board received in April. Both requests to modify existing rules remained in the CR-102’s proposed rules.
      • Implementation of SB 5298’s legislative directives which were passed in May.
      • Consideration of five board interim policies (BIP) regarding PAL adopted in January for more permanent encoding - “and they largely are not going to be,” Hoffman stated.
    • Calling prevention advocates’ comments “broader in scope,” Hoffman said their feedback referenced minimalist packaging standards applied by the Canadian government. She believed the suggestions would be “something to review sometime in the future” and hoped to continue “dialogue” with the prevention community.
    • Board Chair Jane Rushford was appreciative of the prevention advocates’ views but noted that she longed for “stability for our licensees” following a disruptive PAL process which began with an abrupt change in rule interpretation in October 2018, briefly united the cannabis industry before dividing it, spawned numerous interim policies, and incorporated industry petitions and new legislation in addition to abundant stakeholder input.
    • Board Member Ollie Garrett observed that after five years of legal cannabis retail she was uncertain if concern about accessibility by minors was due to a general fear or specific PAL failings.
      • Director Rick Garza previously testified that a spike in calls to the Washington Poison Center (WAPC) in 2017 corresponded to the addition of WAPC’s phone number to cannabis PAL.
    • Board Member Russ Hauge was similarly skeptical after looking at the “national experience” of legal cannabis in several states: “what’s the data about packaging?” He was familiar with research for tobacco and vapor packaging, but wondered whether packaging and advertising research had occurred “in the cannabis space.” Hoffman said a citizen from King County had emailed her three recent studies “kind of in the context of tobacco” suggesting there may be a relation between packaging and youth appeal. “We don’t have the empirical evidence yet to point to a causal link between packaging and...incidental exposure,” she concluded.
    • Rushford’s impression was that some of the issues were responsibilities of the “adult consumer,” to which Hoffman said there were opportunities for public education and advocacy for safety practices like using lock boxes for cannabis. “It’s up to you to keep the kids out of your pot,” Rushford asserted. Hoffman felt the agency could “encourage and facilitate” safe behaviors outside of rule requirements. 
  • Vapor Products (WSR 19-21-102, audio - 2m). Hoffman said she’d be bringing a CR-103 the following day to finalize new vapor product rules.
    • Although the agency had been clear that the rule change was unrelated to bans on flavors and vitamin E acetate from the State Board of Health (SBOH), Hoffman reported that most of the six comments received nonetheless pertained to the vapor product bans rather than the “clarifying and technical changes” or implementation of HB 1873 and HB 1074 in the rulemaking project. Hoffman said that one comment claimed the associated small business economic impact statement (SBEIS) was “flawed” without offering further details or reasoning.
    • She explained that she chose to use a CR-103 memorandum format to include a rule implementation plan instead of the issue brief often used. She promised to have staff at the Office of the Attorney General (OAG) review the “introductory language to each of those sections” to “make sure that we’re solid.”
    • At publication time, the Washington State Department of Health (DOH) had confirmed 20 cases of vaping associated lung injuries in Washington.
  • Cannabis Penalties (WSR 18-22-099, audio - <1m). Hoffman explained that proposed penalty reforms would have a public hearing on January 8th and “to date, we have received no comments.”
  • Voluntary Compliance Program (WSR 19-15-074, audio - 1m).
    • Part of the implementation of SB 5318, Hoffman said the agency hosted its first stakeholder meeting on November 12th. She noted that Policy and Rules Assistant Victoria Owen had “put together a substantial package for us to review of her notes, other comments we received as a result” of the meeting.
    • Hoffman announced that staff would be meeting internally on December 19th to review comments and “start building out the program.” The process would involve looking at the Enforcement division’s current protocols and “the direction they’d like to go in.”
    • She expected to “close the loop” on the rule project by April of 2020. 
  • True Party of Interest (TPI, WSR 18-22-054, audio - 5m). Hoffman told board members there had been “significant progress” following work with cannabis industry stakeholders and that the agency was “almost there” on rulemaking.
    • One development was that “financiers” would have their “own special section” in rule separate from TPI. She assured the group she’d have “something more substantive” at her next meeting with the Board.
    • Director Rick Garza added that TPI had been a key issue discussed during the recent Regulators Roundtable, with the definition of business “control” a common sticking point in many legal states. “Everyone struggles with this across the country,” he said. Hoffman responded that “Ross, from the state of Colorado” had just concluded changes to that state’s out-of-state investment policy which she planned to use in her study of how best to define “control” in Washington’s rules.
    • When asked about the vetting of spouses of true parties of interest in other legal states, Hoffman responded that it varied, in part, on community property laws. At the time of publication, Washington, Nevada, and California were the only legal cannabis states with these laws.
  • Hoffman brought up a petition from the Washington SunGrowers Industry Association (WSIA) regarding processor service arrangements which the agency received “on the morning of October 30th,” the same day the Board advanced PAL to its current stage (audio - 9m).
    • WSIA’s Executive Director Crystal Oliver recognized the processor service arrangements section, WAC 314-55-077(11)(b), was in the rule set the agency was advancing and hoped “that this change can be rolled into that rulemaking process.”
    • The petition articulates the problem this way: “Due to a combination of weather and market conditions several contract processors (processor B) have backlogs of product that they are working to process prior to return to the original processor (processor A)... We are finding that processing service contracts are almost always taking more than 30 days to fulfill for processors who are offering the best rates and have the best relationship and reputation with farmers... We have had a few members reach out concerned that a delay/ back log at processor B may result in seizure and destruction of the product they own as processor A based on subpoint ‘b.’”
    • WSIA proposed language that would change the 30-day payment window to a “reasonable amount of time” and no longer permit WSLCB to “seize or destruct” cannabis on these grounds even if a producer was penalized.
    • Hoffman considered the request a “separate rulemaking petition” from PAL as it was both too late to change the proposed rules submitted to the Office of the Code Reviser (OCR) Order Typing Service (OTS) or gather feedback from those who had participated during the rulemaking project’s development. “I analyzed this as two separate requests,” Hoffman elaborated, one striking language requiring payment within the 30-day period and another striking the seizure/destruction language.
      • She said Enforcement staff reported scant activity around the 30 day rule, which she described as attempting to put a time limit on the payment and exchange of cannabis as well as “require that payment for that product be in cash, instead of product.” Hoffman added that her understanding was that “the rules are doing what they’re supposed to.”
      • Hoffman felt that the petitioner’s argument that the seizure/destruction authority was “heavy-handed” was offset by other rulemaking activity. She elaborated, “this was one particular section of [the Cannabis Penalties] rule project that we significantly reduced the fines and penalties for” considering that it “used to result in license cancellation for our licensees. We’ve now removed that in its entirety. We also reduced the fine that would have happened on the third violation for a Tier 3 from $60,000 to $15,000 across the board.”
      • Hoffman advised the Board to deny the petition for these reasons.
    • Garrett delved deeper to find out if processors had to complete these arrangements in cash due to banking difficulties. Hoffman clarified that “cash” in the rule was interpreted via WAC 314-55-018 to allow transactions like checks from credit unions, so long as licensees were not attempting to pay the service agreement in cannabis product. 
    • Hoffman then offered that “Enforcement indicated to me that they are open to, and have, if a situation arises where that 30-day time frame isn’t going to work, they’re willing to work on an exception with licensees.” She said that Enforcement had “been flexible” with licensees who communicated logistical challenges to them up front. Garza suggested “something in writing that says we do that” to keep that practice from being “discretionary as to whether it’s going to be applied or not.”
    • The Board voted to deny the petition based on Hoffman’s memorandum.

• Director Rick Garza and Hoffman gave their impressions of the most recent Regulators Roundtable which brought together administrators of legal cannabis jurisdictions (audio - 9m).
  • WSLCB staff talked about previous roundtables in Anchorage, Alaska on August 7th and Denver, Colorado on May 22nd, 2018. Special Assistant Gretchen Frost mentioned Garza’s attendance at the Maryland roundtable the week before. 
  • In addition to Garza and Hoffman, WSLCB Public Health Education Liaison Sara Cooley Broschart and Bruce Turcott, one of WSLCB’s assigned Assistant Attorneys General, attended as well.
  • Both Garza and Hoffman were highly complimentary of the gathering and Hoffman promised to share copious notes from the event with board members. Garza said one highlight was a speech by former U.S. Deputy Attorney General James Cole, author of the infamous Cole Memorandum offering federal guidance for legal cannabis states which was rescinded in 2018 by then-Attorney General Jeff Sessions.
  • Garza said that officials from 27 states and 3 Canadian provinces didn’t allow the media or cannabis industry to attend so they could “be very candid with one another about how difficult it is” and share challenges---and “victories too”---in regulating cannabis. Noting that he was being recorded by Cannabis Observer, Garza diplomatically prescribed staff would “bring to you what we think is appropriate for a public setting.”
    • Regarding PAL, Garza claimed that “the states that have started with medical first as regulated, unlike Colorado, Washington, Oregon, Alaska, some of the western states that had medical laws that had passed through initiative but were not necessarily regulated - how difficult it was for them to take this industry and begin to regulate it.” He praised states that passed “very restrictive” medical cannabis laws as having a leg up on PAL, “and why wouldn’t you?” he asked, “it’s a medical product.” Garza said his point was that “the states that have come in the last two to three years, they didn’t use an initiative process where the legislature and the stakeholders and the industry sat down to form what the law would be.” He surmised that Washington’s PAL rules were “moderate-to-liberal” compared to states legalizing recreational cannabis after instituting strict medical regimes. “We’re trying to re-adjust and create a new system when it was pretty wide open what you could do” in the former dispensary gray-market with no state PAL rules for medical cannabis. 
      • Colorado adopted comprehensive revisions to their medical cannabis program in June 2010, just over two years before that state legalized recreational cannabis along with Washington in November 2012. It did not have the manner of PAL restrictions Garza described but was  “the most comprehensive system of medical marijuana distribution and regulation in the world” according to Sensible Colorado.
  • Garza explained that this roundtable was the first with a theme: “Public Health and Prevention.” The first day saw a federal panel with representatives from the Food and Drug Administration (FDA), Centers for Disease Control and Prevention (CDC), and Gillian Schauer, Clinical Instructor at the University of Washington’s School of Public Health and Senior Consultant to the CDC and National Institute on Drug Abuse (NIDA). 
  • Hoffman noted that Massachusetts’ cannabis regulators were “very interested” in WSLCB’s “rule development process in the cannabis space,” particularly the agency’s listen and learn format. Hoffman planned to consult and advise officials from the Bay State.
  • Garza said he’d bragged about Hoffman and Broschart’s efforts throughout the event and stated “there’s nothing more important than transparency in this process especially around rulemaking.” He suggested a decline in comments from stakeholders indicating they were unaware of rulemaking actions or how to get involved was thanks to Hoffman and staff’s efforts. Garza said he told several attendees that having staff at the WSLCB dedicated to public health and prevention provided better feedback “day-to-day” for the agency’s regulatory efforts especially “when there’s a big issue like vaping.”

• The Board and Garza provided updates on legislative developments, meetings, and the following week’s Cannabis Advisory Council gathering.
  • Garza shared several pieces of information relevant to WSLCB’s cannabis activities (audio - 14m).
    • He reported that Representative Gerry Pollet continued to craft vapor legislation in collaboration with WSLCB and Governor Jay Inslee’s office, though it hadn’t been decided if a potential bill (or bills) would be positioned as requests from the Governor or agency request legislation from DOH and/or WSLCB.
      • Pollet sponsored HB 1932 during the 2019 legislative session seeking to further regulate vapor products and prohibit flavors. In September, he spoke during Inslee’s press conference on the executive order on vaping. In October, Pollet testified in favor of the ban on flavor by the SBOH.
    • Garza said he’d been contacted by Representative Joe Schmick of southeastern Washington about the agency’s regulation of cannabis odor. He informed Schmick smells were regulated by institutions such as the Spokane Regional Clean Air Agency (SRCAA) in addition to the Department of Ecology (DOE).
    • Garza had become aware of draft legislation on labor peace agreements backed by the prominent retail union UFCW 21. Though he had not seen the draft, he’d been briefed on its purpose. The proposed bill would require the adoption of labor peace agreements by all licensees at the time of license renewal to codify their employees’ right to unionize if desired. Garza understood the proposal to be centered around a list of criteria agreements could include in addition to “a social equity piece.” He and Garrett said this practice had become common in other industries. Garrett acknowledged positives and negatives of the proposal before voicing concern that some agreements “hurt small business” through increased costs.
      • Labor peace agreements were one of several issues at issue during a public hearing on SB 5985 late in the 2019 session.
  • Garrett said she was preparing to lead the December 17th Cannabis Advisory Council (CAC) meeting and squaring away the gathering’s agenda (audio - 3m).
    • Garrett planned to meet with Vicki Christophersen, Executive Director of the Washington CannaBusiness Association (WACA), and had spoken to Lara Kaminsky from The Cannabis Alliance to understand those group’s legislative goals for the coming year.
      • The most recent CAC agenda included time to discuss “Industry/Stakeholder Bills.”
    • Garrett asked about including a “small holders” discussion following up on the topic from the July 17th CAC meeting. Hauge responded that the effort had been “superseded” by the agency’s request legislation on cannabis patients and small producers and “the rulemaking that we’re doing now.” He said the work continued but didn’t warrant a dedicated update for the CAC.
    • In regards to the addition of a medical cannabis patient representative to the CAC, Garrett said she “still didn’t hear from the second medical person from eastern Washington.”
      • The CAC agenda lists Lukas Barfield as the new “Patient Representative.”
  • Hauge said he’d recently addressed the Tacoma-Pierce County Bar Association, giving a presentation similar to one he gave the American Bar Association (ABA)’s Business Law Section in April. He described the crowd as “people who waited until the last minute to get their continuing legal education credit” (audio - 6m).
    • One lawyer with several clients holding alcohol licenses told Hauge that WSLCB had been “less responsive to the needs” of alcohol licensees since the legalization of cannabis. He also heard complaints about cannabis odor, leading him to give guidance similar to Garza’s advice to Representative Schmick
    • Hauge said that the “tight fisted approach” to cannabis regulation which made sense when only Washington and Colorado had recreational cannabis no longer felt justified now that most states had medical or recreational policies. While he heard several critical questions from the “conservative audience” he avoided taking a moral position for or against cannabis when responding. Rushford called out the “positive evolution of investment” in cannabis policy at the agency since she’d joined the Board. Hauge agreed that while there was “work to do” he’d seen numerous improvements at WSLCB in recent years. “If there’s a demand for our services that means business is good and we should get on it,” he concluded.
    • Hauge added that he’d be visiting Trail Blazin’ Productions, a Bellingham producer/processor, the following week and would soon be meeting with a producer/processor client of lobbyist Bryan McConaughy.
  • Rushford explained that she’d been meeting with cannabis stakeholders in recent weeks and looked ahead to agency engagements in 2020 (audio - 7m).
    • Rushford mentioned meeting with lobbyist and former Board Chair Chris Marr; lobbyist Al Ralston; and Kaminsky to “be well informed for session.”
    • After the final board meetings in December, the agency would begin setting up significant meetings for 2020 including:
      • An off-site event, which may or may not involve a board meeting similar to the on-the-road meetings in Bothell and Spokane earlier in 2019.
      • A board planning retreat postponed through 2019 would be rescheduled for some time after the legislative session. The Board’s last planning retreat was hosted in July 2018.
      • A Cannabis 2.0 (C2.0) interagency meeting which had been postponed due to participating agencies not having request legislation approved in time would be rescheduled after session to focus on the intersection of cannabis policy between the different agencies. Rushford said her intent was still to have the entire WSLCB board present to establish a public meeting context.