WA House RSG - Committee Meeting
(January 23, 2023)

Here are some observations from the Monday January 23rd Washington State House Regulated Substances and Gaming Committee (WA House RSG) Committee Meeting.

My top 3 takeaways:

• HB 1341, legislation permitting out-of-state ownership of cannabis licenses, was reviewed by Committee Counsel Peter Clodfelter (audio - 3m, video).
  • Under Initiative 502, cannabis license applicants were required to be Washington state residents among other criteria to qualify for licensure. Allowing out-of-state ownership as a way for established cannabis businesses to secure capital and grow had been an argument made by several licensees and their representatives for years.
    • After approving a CR-101 to consider the issue in October 2018, staff for the Washington State Liquor and Cannabis Board (WSLCB) hosted a workgroup on the subject in 2019 and 2020, as well as a listen and learn session in May 2020 before finalizing changes clarifying true parties of interest (TPI) rules that September.
    • Idaho businessman Todd Brinkmeyer sued the WSLCB in June 2020 in an effort to overturn the residency requirement, with a state court order in July 2021 finding that WSLCB was acting within its authority while the lawsuit was ongoing in federal court at time of publication.
    • Legislation permitting out-of-state ownership was proposed in 2019, 2020, and most recently in 2022. Though it had failed to be passed by a legislative chamber, the topic remained salient, with members of the Washington CannaBusiness Association (WACA) citing TPI issues as a concern in June 2022, and WSLCB leadership noting a conversation on market structures where the subject came up with other members of the Cannabis Regulators Association (CANNRA) during a December 2022 conference.
  • Clodfelter provided the specifics of HB 1341 from the bill analysis, which states the measure:
    • Requires the Liquor and Cannabis Board (LCB) to suspend a cannabis producer's license if no activity has been recorded on the license after July 1, 2021, and for the license to be reissued to the licensee in certain circumstances tied to federal cannabis law or policy changes. 
    • Authorizes out-of-state ownership of licensed cannabis businesses. 
    • Modifies requirements about who must qualify for and be named on a cannabis license so that, generally, a natural person holding an ownership interest of 10 percent or less of the entity is not required to qualify for or be named on the license, subject to requirements. 
    • Authorizes the LCB to impose additional licensing fees to recover costs incurred in investigating a nonresident required to be investigated.
  • He did not mention a fiscal note on the bill published late in the evening on Sunday January 22nd, which showed $699,939 in costs for WSLCB in the biennium for fiscal years (FY) 2023-2025, and $511,016 in costs for the agency in subsequent bienniums.

• Ten people spoke in favor of the move, viewing regulation of inactive producers as necessary and out-of-state ownership as a boon to both operating cannabis businesses as well as those getting into the market through the State social equity program.
  • 14 individuals registered positions in support of the bill (testifying, not testifying).
  • Representative Sharon Wylie, the bill sponsor as well as the committee Co-Chair, said there’d been many cannabis policies “in that original initiative, and one of the big worries back then was to make sure that Big Pharma and Big Tobacco didn't come and take our homegrown businesses away from our local people…as this industry evolved.” But officials hadn’t realized “how drastic the lack of the ability to get capital would affect our farms and…our purveyors,” she said. Listing challenges the businesses faced including costs of operations, a “lack of being able to deduct the same things that other businesses deduct” in” federal taxes and other financial barriers, were among the topics the legislation could help, Wylie commented. She was amenable to adjustments to the bill, hoping to “take a broader look through the session and through the interim on how to make this industry better and…more equitable.” She was committed to “address the intersection with equity impacts on communities that have been affected by past laws related to cannabis that [are] not fully addressed in this bill.” Wylie also relayed that “some of the proponents of this bill” were open to lowering or removing the 10% limit for needing to qualify as a license holder, saying proponents would agree to the change “in order to have more transparency on ownership of the businesses” (audio - 3m, video).
    • Legislation to increase the number of licenses available for social equity applicants based on recommendations by the Washington State Legislative Task Force on Social Equity in Cannabis (WA SECTF) that was proposed in 2022 wasn’t passed.
  • The first two panels of supporters included industry representatives who said the bill would promote normal business practices, keep the state competitive in advance of a national cannabis market, and combat “oversupply” of cannabis - overall “good for business."
    • Ezra Eickmeyer, Producers Northwest Executive Director 
    • Lukas Hunter, Harmony Farms Director of Compliance 
    • Douglas Henderson, Painted Rooster Cannabis Company CEO 
    • Eric Gaston, Evergreen Market Co-Founder
    • Joseph DePuis, Doc and Yeti Urban Farms Owner and WACA Board of Trustees Member
    • Andy Brassington, Evergreen Herbal President and WACA Board of Trustees Vice President
    • Co-Chair Shelley Kloba asked about avoiding the “Wal-Martization of cannabis" (audio - 4m, video) and Representative Kevin Waters wanted to understand how comparable ownership and financing oversight in the bill was to California cannabis policies (audio - 4m, video).
  • Others testifying in favor of the measure included:
    • Soulshine Cannabis Owner Patrick Wlaznack
    • Northwest Cannabis Solutions Senior Project Manager Becca Burghardi
    • SAX Capital Partners Founder and CEO Phil Asgedom
    • Chambers asked Asgedom for his opinion on what states posed the greatest competition to Washington on cannabis (audio - 1m, video) and Representative Jim Walsh inquired about the potential impact of outside investment on social equity in the market (audio - 2m, video).
  • WACA Executive Director and Lobbyist Vicki Christophersen said, “I think the case can be made that in the early days [a residency requirement] made sense” but now licensees “and those that will be in business” were “at a disadvantage in the access of typical financial tools.”
    • She echoed some prior remarks on the advantages of the measure to help businesses compete seeking to limit a “severe oversupply in our industry” that could exist should “several hundred unused producer licenses that have just been sort of sitting on the sidelines” become active in the expanded investor pool.
    • Christophersen added that WACA members “appreciated working with” Black Excellence in Cannabis (BEC) members on active social equity legislation. She noted the suspension date for inactive licenses under HB 1341 was “January of 2024, and we would anticipate that the current social equity licenses are being issued…starting in March” to allow those new licensees to seek additional funding (audio - 4m, video).
      • While an applicant window will conclude at the end of March, additional vetting and scoring of applicants by contracted firm the Ponder Diversity Group, remaining reviews by WSLCB and a license issuance by WSLCB, at which point applicants secure a lease and approval from local officials, processes which may add months before equity successful applicants can begin operations. 
    • Ranking Minority Member Kelly Chambers asked Christophersen whether a cap on the size of cannabis producers made sense after interstate commerce was authorized (audio - 1m, video).

• One organization’s leaders argued the bill hurt the goal of ownership equity in the Washington cannabis industry and two business representatives had a more neutral view of the bill: one called for amended language and another suggested a new work group needed to be set up to offer “comprehensive” reforms in the future.
  • 25 individuals registered their opposition to the bill, and three signed in as ‘other’ (testifying, not testifying).
  • A leadership panel from BEC included President Peter Manning, Vice President Mike Asai, and Executive Treasurer Damien Mims. The group called the bill an “attempt to open up a market" which they felt minority communities hadn’t been given an equitable opportunity to access, helping only “current money makers.” They “respectfully demand social equity and [restorative] justice in the Washington cannabis industry."
    • All three men addressed WSLCB about the social equity program on January 4th, and were similarly opposed to interstate cannabis commerce legislation heard on January 10th.
  • Two commenters explained their positions as ‘other’ on HB 1341:
    • Falcanna Owner Bethany Rondeaux argued inactive producer licenses were more likely to be diverting cannabis from the legal market and had specific concerns on a “no activity end date in 2022” related to the license suspension requirement so as to “not give a window to keep shell licenses operational.” She also wanted language to keep such licensees from being to “modify [their] Department of Revenue wholesale tax report to modify that [they] have had activity to try to save the license,” and advised an inactive window of “July 1st, 2021 and December 31st, 2022” (audio - 2m, video).
    • The Cannabis Alliance Executive Director Burl Bryson acknowledged the “evenly and also passionately divided” views of their membership on removing the residency requirement, with some concerned about the ability of outside investors to “buy up licenses and use their monetary leverages to dominate the market.” He called for a new, dedicated work group “to investigate and propose a comprehensive package of changes” which should feature “measures like [a cannabis] commission, craft endorsement, and the opportunity for equity applicants to…secure sustainable and thriving businesses in this environment prior to allowing massive corporations to dominate” (audio - 4m, video).