SRCAA - Board Meeting
(March 7, 2019)

Here are some observations from the Thursday March 7th Spokane Regional Clean Air Agency (SRCAA) Board meeting. This meeting of the SRCAA Board of Directors included a public hearing regarding the imposition of annual registration fees on licensed producers and processors within Spokane County.

Cannabis Observer extends our thanks to Kevin Oliver of Washington’s Finest Cannabis for observing and recording this public meeting in Spokane. If you would like to become a citizen observer in your local jurisdiction, contact Cannabis Observer.

My top 3 takeaways:

• SRCAA Rule Writer Margee Chambers provided background context for Resolution No. 19-05: “Amending Consolidated Fee Schedule Section 10.15(B) Regarding Annual Registration Fees for Marijuana Producers & Processors” (audio – 7m).
  • The Spokane Regional Clean Air Agency is a regulatory agency established to “enforce federal, state and local regulations to reduce air pollution.” The agency’s authority was established by the Washington Clean Air Act of 1967 as defined in chapter 70.94 RCW.
  • The SRCAA undertook development of a “marijuana registration program” under their authority to regulate air contaminants and air pollution. From the agency’s Concise Explanatory Statement (Jan 26, 2018) associated with this rulemaking:
    • The production and processing of marijuana releases volatile organic compounds (VOCs) which cause odors. Under Washington State law, VOCs and odors constitute both air contaminants and air pollution [RCW 70.94.030(1) and (2)] and are therefore subject to regulation. To protect air quality, a person cannot cause or allow the emissions of any air contaminant in sufficient quantities and of such characteristics and duration as are, or are likely to be: (a) injurious to the health or safety of human, animal, or plant life; (b) injurious or damaging to property; or (c) which unreasonably interferes with enjoyment of life and property [SRCAA Article VI, Section 6.04(C) and RCW 70.94.030(2)]. Spokane Clean Air has the legal authority to classify air contaminant sources that cause or contribute to air pollution, and also has legal authority to require registration and reporting [RCW 70.94.151].
  • Chambers began her “quick review of how we got to where we’re at today” with the December 2017 SRCAA Board meeting. From the cited document:
    • On December 7, 2017, a public hearing was conducted on Resolution 17-19 amending SRCAA Regulation I, Articles IV, V, VI and X, to require registration by marijuana producers and processors and adding regulatory standards applicable to marijuana producers and processors. The board took public testimony and then closed the public hearing and public comment period at 11:03 a.m. The Board deferred action and planned to deliberate further on the topic at their next monthly Board meeting on January 4, 2018.
    • Due to the deferred action on Resolution 17-19, the public hearing on Resolution 17-20 amending SRCAA’s Consolidated Fee Schedule pursuant to Regulation I, Article X, was not conducted on December 7, 2017. The Board extended the comment period for Resolution 17-20 ending at the January 4, 2018 hearing.
  • At the January 2018 Board meeting:
    • The Board hosted a public hearing for Resolution 17-20, then passed Resolution 17-19 establishing the marijuana registration program and Resolution 17-20 updating the consolidated fee schedule. However, the Board also passed a motion suspending the implementation of annual registration fees in Regulation I, Article VI, Section 10.15. Definition and collection of annual fees has been deferred since that time.
  • In November 2018, the Board hosted a “Marijuana Registration & Fee Update” work session. From the official meeting minutes:
    • The PowerPoint presentation consisted of a review of the marijuana regulatory program and agency funding sources; marijuana registration included initial registration fees (program development estimate and actual), annual registration fees (program development estimate and revised estimate based off registration) and fee comparisons; and discussion involved options and timeframe and guidance from the Advisory Council and the Board.
    • Ron Edgar stated that the Advisory Council had the same marijuana registration and fee update presentation and the Advisory Council agreed that keeping the fee structure in Article X and the dollar amount in the Fee Schedule as it currently exists would be the best option for the Agency.
    • Kevin Freeman made a motion to put Option One as an action item on the agenda for December and Rod Higgins seconded the motion. Motion passed by a four to one vote.
  • In December 2018, the Board considered the new resolution. From the official meeting minutes:
    • Resolution 18-17: Rescinding suspension of the annual registration fee provisions of Resolution 17-20 for the marijuana producers and processors set forth in the SRCAA consolidate[sic] fee schedule adopted pursuant to Regulation I, Article X. An overview was given on the creating and passing of the Marijuana Registration program and amending the Consolidated Fee Schedule to provide for fees related to the marijuana registration program; along with the Board’s suspension of the annual fees pending further action of the Board.
    • During the public forum, the Board requested more recent citizen input as the formal public hearing for the marijuana registration program had been hosted nearly a year prior. Some of that public testimony is reported in the linked meeting minutes.
    • After the public forum, the Board did not pass the resolution and instead asked staff to revisit the proposed fee schedule.
  • In January 2019, the Board hosted a work session. From the official meeting minutes:
    • An overview was given on the marijuana annual registration fees including where Spokane Clean Air started – key input from [Marijuana Advisory Committee (MAC)] process; industry evolution; transitioning from initial registration to annual registration; initial registration update; suspended annual registration fee schedule; annual registration fees estimated revenue using the suspended annual fee schedule; marijuana annual registration fees estimated expenses; other annual fee concepts [fees based on production/processing (rate-based fee structure)]; keep annual registration fee structure as adopted and adjust the fee amounts in the fee schedule; and flat fee structure; annual registration fee timelines; and guidance from the Board.
    • Discussion ensued between the Board Members present, legal counsel and staff regarding the fee structures and registration. The Board would like to see SRCAA work toward something that brings the fee structure and the estimated revenues from the suspended fee structure more in line with the estimated costs. The Board added that this would give the Board the opportunity for experience with actual costs and then adjust fees again as needed. The Board directed staff to adjust the fees down proportionately in the existing structure so that the total comes to approximately $175,000.00 and then open a public comment period on changing the consolidated fee schedule for the annual registration fees for marijuana producers and processors.
  • In closing, Chambers reviewed the perspectives and topics collected during SRCAA’s public comment period for the new resolution.
• Acting Chair Tom Brattebo introduced the public hearing for Resolution 19-05 and nine citizens testified (audio – 2m).
  • Mark Ambler spoke on behalf of the Tier 1 Producer Association. He asserted that tier 1 producers are disproportionately impacted by the SRCAA’s fees and that the proposed fee reduction is inadequate (audio – 3m).
    • Ambler claimed that the value of a tier 1 producer license has dropped 75% since 2017.
    • He pointed out a discrepancy between the amount of cannabis tier 1 producers are technically allowed to grow in Spokane County (2.5% of the total allocated canopy) and the percentage of funding they would provide to SRCAA’s program (14%).
    • Ambler requested a Small Business Economic Impact Statement, and claimed the agency was obligated to provide one, as RCW 70.94.141 references RCW 34.05.320.
    • He recommended SRCAA coordinate with WSLCB during their upcoming survey of licensee sentiment discussed during the March 5th WSLCB Board Caucus.
  • Kevin Oliver, Washington’s Finest Cannabis Co-Founder and Washington NORML Executive Director, explained how marijuana and hemp are legally differentiated based on the presence of 0.3% THC by dry weight. He called this difference “inconsequential” and requested SRCAA change their fees (audio – 2m).
    • Oliver shared that the State Legislature was in the process of crafting statute which would task the Washington State Department of Agriculture (WSDA) with preparation and administration of the state’s plan to implement a federally legalized hemp agricultural commodity program.
    • “If I were to plant the other 9 acres [of my 10-acre parcel with hemp], it’ll look and smell exactly like marijuana. The CBD that you hear about in the news – that comes from the flower. It’s gonna look and smell exactly like my marijuana. It’s going to be agriculturally exempt.”
    • Oliver drew a comparison between the Catholic Church’s persecution of Galileo and the SRCAA’s treatment of cannabis farmers, stating that “[the SRCAA] will be changing these rules eventually.”
  • Crystal Oliver, Washington’s Finest Cannabis Co-Founder and Washington SunGrowers Industry Association (WSIA) Executive Director, spoke on behalf of the trade association (audio – 3m).
    • WSIA submitted a formal letter and report during the resolution’s public comment period.
    • Oliver recommended “an exemption from initial and annual registration for outdoor cannabis farms who are located on rural, agriculture, resource lands on parcels that are on ten acres or greater in size.”
    • Oliver raised deeper concerns about the SRCAA’s marijuana registration program including “inequitable fee distribution”; a failure “to comport with the Clean Air Act”; and lack of clarity in definitions and the application thereof.
    • Oliver referenced the SRCAA Marijuana Advisory Committee (MAC), which met throughout 2016 to advise the agency on the development of their marijuana registration program, and regretted the MAC process did not include more discussion of specific definitions and proposed regulations.
    • Oliver expressed compassion for the Board’s challenge to respond to complaints and admitted, “it’s no easy task to build regulations from scratch.” However, she felt their actions were “too broad and too sweeping” and recommended “[taking] a step back, do a little more collaborative rulemaking approach.”
    • Oliver honed in on problems with the fundamental definitions the marijuana registration program was built on: “The fees we’re looking at right now, they center around these definitions, and I’m telling you that there’s problems with these definitions. There’s lack of clarity in these definitions.”
    • Oliver concluded by conveying her membership’s excitement about the prospect of diversifying into hemp cultivation and predicted the SRCAA wouldn’t attempt to regulate hemp farmers: “I know you guys are going to tell me hemp is [agriculturally] exempt, you’re not gonna come after me for fees for my hemp, because I’ll say go talk to the Farm Bureau, and you guys won’t.”
  • Alex Kwan, the owner of tier 3 outdoor producer Majico Cannabis Farm, explained SRCAA’s proposed fees were “another rock in the boat” (audio – 3m).
    • Kwan felt he was “burdened by the fees which make it difficult for me to stay in business.”
    • He explained the fallacy of the agency’s assumption that tier size strongly correlated with production output, and argued that the agency’s proposed higher fees for higher tiers ignored the diversity of business models in play.
    • Kwan also highlighted the agency’s unusual treatment of “Other marijuana production” methods besides indoor and outdoor cultivation (hoop houses and greenhouses with retractable roofs): “We didn’t have any facilities, and we couldn’t really afford much, but we could afford a hoop house. And then that, unfortunately, falls under your other producer requirements which now mean, according to the current fee schedule, is $3700 per year every year… And that exceeds all the licensing requirements we have to pay at the State for cannabis licensing.”
  • John Woodhead of processor Uahi asked for a complaint-driven fee schedule to avoid “being fee’d to death” (audio – 3m).
    • Woodhead expressed concern about the economic trajectory of the industry which he surmised was headed towards increased consolidation.
    • Woodhead confirmed Kwan had never been the target of a complaint, “and he’s paying the highest fee that there is, and I just think that’s really unfair.”
  • Frank Schade, owner of tier 1 P/P Green Surfer—the seventh licensee in the state and one of the first in Spokane County—provided additional historical context in support of cannabis farmers (audio – 3m)
    • “This really started with the same two people complaining over and over about the neighbors. Occasionally at the meetings there would be a couple other people who had general complaints. And oftentimes they would lump on odor as one of their problems they had with the marijuana farm up the street.”
    • “No other industries are treated this way. It’s just way too much money when you actually haven’t been or visited to the farms, or had complaints about the farms.”
    • Schade provided a specific example of a cannabis farmer subletting on his property “who went out of business over this particular fee, it was just the final straw. He didn’t have $750 and he was looking at, I believe, the fine takes it up to $1500 if you don’t pay it. It was more than he was willing to bear.”
  • Toni Nersesian of Palouse Farms, a tier 1 P/P, expressed three main concerns: breaking precedent, a lack of options for fee payment, and the financial impact of repeat complainers (audio – 4m).
    • Nersesian expressed concern that the SRCAA was breaking precedents established by other building and planning agencies which exempted processors that solely package flower from industrial processing fees.
    • Nersesian asked for flexibility in the agency’s fee payment terms modeled after payment of property taxes in installments.
    • Nersesian acknowledged the impact of responding to complaints on the resources and functioning of the SRCAA. She suggested that instead of levying fees on licensees to cover the costs of responding to repeated complaints from the same sources, the agency should instead charge complainants if the situation had already been addressed to the agency’s satisfaction.
  • Tom Barlow of Palouse Farms gave a pointed, concise testimony expressing his outrage at the SRCAA’s extraction of rent from cannabis farmers (audio – 1m).
    • “I don’t need a bunch of good old boys, because they don’t like the product, sittin’ around, wondering what they can do to stop it. And that’s what I consider you guys, a bunch of good old boys, we know who you are, sittin’ around: ‘oh gee, how we can stop lettuce, this devil’s lettuce.’“
  • Carl Caugchran, a former representative of the “Affected Public” on the MAC, testified “to offer the Board a counterpoint to what everybody else has said here.” (audio – 3m)
    • Caugchran referenced discussions which took place during the MAC meetings: “the one thing that’s been steady through this process is the lack of resources or lack of funding to regulate what’s going on.”
    • Caugchran compared the fee schedule adjustment to appealing one’s property taxes and expressed his feeling that it was “very generous” to reduce the proposed fees by 21%.
    • Caugchran expressed appreciation for the agency’s protection of “the enjoyment of our property.”
• The SRCAA Board shared their personal perspectives during formal discussion and voted to adopt the resolution establishing annual fees (audio – 1m).
  • Kevin Freeman, Small Cities/Towns Representative and Mayor of Millwood (audio – 3m)
    • Downplaying “the economic comments are what they are,” Freeman expressed concern about alleged problems with the agency’s legal definitions and requested “to see some response from [SRCAA] staff” so the agency could have “greater understanding.”
      • Michelle Fossum, Board Legal Counsel, answered that “today is just about the consolidated fee schedule, the rest is outside the scope” but promised to share “what we’ve done before, and what we have now” as well as respond to the comments that had been raised at the meeting.
    • Freeman felt they’d “gone through rulemaking and shown how we calculate fees” but wanted to see response to comments that were “germane.” He added, “some of them, obviously, were not.”
    • Before the final vote, Freeman aligned with other Board Member comments that fees had been calculated to the best of the agency’s ability. “It is what it is,” he told those in attendance, concluding that the motion was not an “arbitrary fee” (audio – 1m).
  • Tom Brattebo, Citizen and Member-at-Large Representative, Acting Chair (audio – 3m)
    • Brattebo argued SRCAA “has spent a lot of money” which came from citizens of Spokane County, not producers or processors, and lamented the length of the project: “we’ve been at it for three years or so.”
    • “I have visited, I have smelled,” he stated.
    • Brattebo described an experience with a group of 5th grade students on a field trip to an area creek. He said he crushed up a “big, shiny, green leaf” and asked the children “what’s this smell like?” Brattebo said the group of 20 children all responded “marijuana…nobody said skunk.”
    • He continued, “there is an odor issue with marijuana” and the agency had to deal with odor concerns. Rather than continue to spend public money trying to remake the rules and have public hearings, Brattebo opined to “send inspectors out and we can really see what’s going on, and probably change things.”
  • Rod Higgins, City of Spokane Valley Representative (audio – 1m)
    • Higgins felt they’d heard the same points from multiple speakers and shared his conclusion: “Your business plan sucked. I’m sorry I can’t help you. That’s not this agency’s responsibility.”
    • He believed problems with definitions would be reexamined: “If we didn’t get the definitions right first time around, shame on us.” But concluded the method for remedying it, while imperfect, was to “find out what we’ve got, and then start adjusting.”
  • Karen Perkins, alternate for Chair Al French (audio – 1m)
    • Perkins asked, “can the agency do complaint-driven fees?” Chambers replied that the MAC did not want complaint-driven fees and no other registered sources had complaint-driven fees. Brattebo added, “a complaint would generate a fine.”
  • The Board approved Resolution 19-05 (audio – 2m).
    • Freeman reiterated his desire to see answers to the day’s comments as it could help SRCAA anticipate “changes, or if we have the potential for conflict with state regulations.” He also wanted the agency to weigh the impact of pending legislation in Olympia regarding “cannabis as an agricultural crop” or relevant definitional changes.
    • Brattebo agreed that hemp and cannabis were likely to be addressed at the legislature, but after an exasperated plea for better state policymaking from Freeman, stated “We have what we have.” He thought the county needed to see the rulemaking “get on.”
    • The Board unanimously approved Resolution 19-05.
    • The new rules go into effect March 16, 2019.