Hillard Heintze - Focus Group
(July 30, 2019)

Here are some observations from the Tuesday July 30th facilitated discussion hosted by Hillard Heintze regarding the Washington State Liquor and Cannabis Board (WSLCB) Enforcement and Education Division, the agency more generally, and cannabis legalization in Washington State.

Hillard Heintze is a Chicago-based consultancy specializing in law enforcement and risk management projects with organizations in the United States and beyond. Three consultants with law enforcement backgrounds interviewed participants about the regulated cannabis marketplace in Washington State, and the pivotal role played by the Washington State Liquor and Cannabis Board (WSLCB) in that unfolding story. While the scope of Hillard Heintze’s subsequent observations and recommendations would be constrained to the WSLCB Enforcement and Education Division, the consultants seemed interested to hear most anything participants wanted to share regarding the agency and their experiences in the state’s legalized cannabis experiment.

In late March, the Hillard Heintze firm responded to a WSLCB request for proposals (RFP) for “a neutral, third party consulting firm to examine the practices of the WSLCB Enforcement and Education Division.” The RFP introduction states:

The successful vendor will conduct a systemic review of all aspects of operations and management of the Enforcement and Education Division, with an emphasis on policies, complaint intake and investigations, and training and accountability. The successful vendor will evaluate the internal functions of the Enforcement and Education division’s efficiency and effectiveness carrying out the WSLCB’s mission…

The WSLCB did not undertake voluntary solicitation for review of its enforcement practices without prompting. During the 2019 session, the legislature mandated extensive reform of WSLCB enforcement practices through SB 5318. An early version of the bill (section 10) would have created “a legislative work group on cannabis enforcement and training processes and procedures” with members appointed by the legislature. In mid-February as the bill progressed, a group of legislators sent a letter to the Office of the Governor which oversees all executive branch agencies and was responsible for appointment of members of the WSLCB Board who in turn appoint the agency Director. While Governor Jay Inslee did not grant the legislators’ request to rescind the appointment of WSLCB Board Member Russ Hauge, he said the agency would hire “an independent consultant to review its enforcement practices.” After WSLCB declared its intention to issue an RFP in late March, the legislative workgroup was struck from SB 5318 as the bill was passed out of the House Commerce and Gaming Committee.

The introduction of the RFP concludes that the successful vendor will also:

…examine the relationship with licensees.

In addition to internal interviews with WSLCB staff and external interviews with selected licensees and their colleagues beginning in June, Hillard Heintze planned two public engagements the first of which occurred on Tuesday July 30th at Green River College in Auburn. A second event was planned for Spokane Community College in eastern Washington on Wednesday July 31st. The WSLCB helped the consultants secure event locations, but stated their intention to remain uninvolved: “WSLCB chose this third-party, neutral vendor to lead this effort to ensure 100 percent unbiased data gathering. LCB staff will not be present at these forums.”

Cannabis Observer participated in the July 30th event but did not record the discussion facilitated by the Hillard Heintze consultants, who abide by a policy of non-attribution of ideas and quotes they include in their communications with contracting organizations.

My top 3 takeaways:

• The stories recounted to Hillard Heintze were consistent with established themes heard by Cannabis Observer.
  • Inconsistency of enforcement is self-evident to licensees because of a high rate of turnover amongst enforcement officers.
    • One licensee participant reported experience with five or six different enforcement officers over a four year period, with vastly different relationships with each. Licensees were typically not informed when they were assigned new enforcement officers.
    • The approach enforcement officers took to achieve licensee compliance varied significantly, from collaborative education to intractable “gotcha” mentalities. One licensee reported experience with an officer who stated their assumption that employees only worked in the industry to steal cannabis.
    • One licensee reported attending an industry function several years prior at which the WSLCB Chief of Enforcement was alleged to have stated operators should expect inconsistency as enforcement officers were given significant discretion to respond to conditions in the field – and were instructed not to provide written documentation of their policy interpretations.
  • The structure of the I-502 marketplace had issues.
    • Participants emphasized the disparity in power between the retail and supply sides of the marketplace, typically attributed to the limited number of retail outlets as compared to the larger number of producers and processors in the state. Supply side licensees competed against one another for limited retail shelf space across a small number of product types in a nascent market made more challenging by oversupply.
    • Smaller supply side licensees reported difficulty competing as some retailers preferred vendors who could offer a diversity of product types and grades of quality, thus simplifying retailer procurement and replenishment efforts.
    • Constraints on the quantity of samples which retailers could accept per month was cited as a barrier to entry which also imposed substantial overhead and inconvenience on suppliers.
    • Participants lamented the state of medical cannabis in Washington, and called for enforcement of the requirement that retail stores with medical endorsements actually carry medically-compliant products (WAC 314-55-080(3)(d)), have certificates of analysis on hand, and train medical consultants to better perform their jobs.
  • Bigger fish seemed to evade accountability.
    • One participant pointed out a retail operator’s public testimony before the legislature attesting to the sale of a sixth retail license to achieve compliance with the state limit on ownership of up to five retail licenses. The participant felt there was no accountability evident while the retailer profited from the sale of an illegal business.
    • Participants wondered why the WSLCB did not appear to focus investigative resources on true parties of interest, a “one strike and you’re out” violation under the current penalty matrix. Mention was made of the agency’s hidden ownership amnesty program proposed in June 2018 and subsequently discarded before implementation.
    • A provision in SB 5318 established new limitations on WSLCB’s ability to consider violations issued more than two years prior when making licensing decisions.
• Participants recommended ways the WSLCB can improve.
  • Do something about traceability. The misery of the recent MJ Freeway Leaf Data Systems update was the first topic broached by participants, who universally condemned the frustration, expense, and unclear purpose or value of the current regime of seed-to-sale tracking mandated by the WSLCB.
  • Enforce the laws and rules consistently and equitably. Participants wanted the WSLCB to establish consistent, shared understanding throughout the agency of the laws, rules, policies, and interpretations that impact the regulated community. Licensees expressed appreciation for how difficult it can be to stay on top of the constantly changing rules for the new industry, but recounted stories of situations in which they were called upon to educate their Enforcement and Education Officers about the agency’s own rules.
  • Enforce the laws and rules in some order of priority. Participants felt the agency was inappropriately focused on comparatively inconsequential administrative violations, such as issues with video surveillance equipment. By way of contrast, well known examples of de facto vertical integration, pooling of licenses beyond statutory constraints, and creative out-of-state investment appeared to proceed unchecked.
  • Encourage less turnover of Enforcement Officers (EOs). Cultivation of relationships and establishment of trust takes time – and was improbable when EOs were reassigned every few months.
  • Move beyond complaint-driven enforcement. Participants indicated complaints are often filed by competitors or disgruntled former employees. WSLCB intended to activate a new system of data-driven alerts in conjunction with the most recent release of the traceability system, but it was unclear if the parallel release was executed. Discussion participants were dubious about the value of alerts derived from the questionable data in Leaf, and expressed concern about false positives and false negatives.
  • The WSLCB should not be drafted into participation in federal, state, and local investigations into illicit market activity. WSLCB participation was considered necessary in cases of product inversion into or diversion out of the regulated marketplace. But the agency did not have jurisdiction over actors in the illicit market and could push back on external requests to utilize agency resources for that purpose. One participant felt enforcement participation in actions against so-called “bad cannabis” was likely to create confusion for officers and reinforce historical stigmatization of cannabis with negative outcomes for licensees operating in compliance within the regulated market.
• The consultants were open to additional feedback and planned to wrap up their engagement with WSLCB soon.
  • On August 1st, the agency asked licensees to continue providing perspective to Hillard Heintze via a “WSLCB Licensee Satisfaction Survey.”
  • The Hillard Heintze consultants expected to issue a report of their findings and recommendations by mid-September or October.