WA House COG - Committee Meeting
(February 18, 2019)

Here are some observations from the Monday February 18th Washington State House Commerce and Gaming Committee (WA House COG) Committee Meeting.

My top 3 takeaways:

• The committee hosted a public hearing for HB 1963, “Concerning financial arrangements regarding licensed marijuana businesses.”
  • Staff Counsel Peter Clodfelter summarized the bill’s impacts (audio – 2m, video); from the Bill Analysis:
    • Provides that employees of licensed marijuana businesses whose compensation includes base pay plus a commission is not considered an applicant, owner, or true party of interest of the licensee solely due to the commission-based compensation agreement.
    • Establishes there is no limit on the amount or value of commission an employee of a licensed marijuana business may receive under an employment agreement, while specifying this does not authorize employees to own businesses unless qualified as a license applicant.
    • Authorizes the Liquor and and Cannabis Board (LCB) to require a financial investigation and criminal history record check of financiers of marijuana license applicants, but their spouses are not subject to these requirements solely due to being the financier’s spouse.
    • Amends the 2017 law regarding disclosure of marijuana business licensing and consulting contracts with other parties related to trademarks and proprietary information, to specify which types of these contracts are subject to LCB approval.
  • Ranking Member Drew MacEwen spoke to the bill’s necessity because “understanding of the business” differed between the Liquor and Cannabis Board and the legislature. He believed the bill helped lawmakers respect the will of voters by enabling licensees to award employee bonuses without their being considered principals of a license (audio – 1m, video).
  • Brooke Davies testified on behalf of the Washington CannaBusiness Association (WACA) saying HB 1963 represented “issues that we’ve been raising with the LCB for years” and that it codified standard practices. She emphasized the absence of need to vet spouses of financiers and referenced an administrative law case in which a “judge found in favor of the licensee that the use of commission-based pay did not make that employee a true party of interest” (audio – 1m, video).
  • Philip Dawdy, lobbyist for retailer Have a Heart, supported passage. He agreed with the previous suggestion to “codify standard business practices” and claimed WSLCB’s current policies require vetting office supply contracts. “You can’t run a business that way,” Dawdy said in calling for more flexible compensation arrangements in a competitive labor market (audio – 1m, video).
  • Chris Thompson, Director of Legislative Relations for WSLCB, testified neutrally and shared thoughts regarding commission-based payments and spousal vetting. Although not opposed to commissions, he encouraged lawmakers to consider “some limitation” on them as the bill as written could lead to complaints and investigations around true parties of interest. Thompson was skeptical about removing vetting for spouses—a potential vector for criminal “participation”—and claimed current agency practice was a “backstop” required by financial institutions to offer banking services to the industry (audio – 3m, video).
  • Seth Dawson, representing the Washington Association of Substance Abuse and Violence Prevention (WASAVP), said the organization’s opposition was “too fine a point.” Dawson claimed his organization “strongly favor[s] proper regulation” and had anticipated sharing WSLCB’s concerns. He encouraged proponents to work with the agency to improve the bill before WASAVP would consider supporting it (audio – 1m, video).
  • Representative Bill Jenkin began by noting his operation of a wine tasting room with employees paid on commission but inquired whether salaried employees fell under the same restrictions. Staff responded that the bill was new territory not currently in law and current licensee practices might better address that (audio – 4m, video).
  • Representative MacEwen reminded those assembled that America was “a capitalist nation” and asked Thompson to name another industry in Washington where employee commissions were limited. Thompson struggled but said traditional concerns about commission-based pay were that it could be a “profit-sharing arrangement that constitutes ownership of the business.” He said it was only an issue due to federal prohibition of cannabis, and introduction of limitations would help keep the agency from being “dragged into” less serious complaints (video).
• The committee hosted a public hearing for HB 2052, “Clarifying marijuana product testing by revising provisions concerning marijuana testing laboratory accreditation and establishing a cannabis science task force.”
  • Clodfelter briefed the committee (audio – 3m, video); from the bill analysis:
    • Transfers authority and responsibility for marijuana product testing laboratory accreditation requirements to the Department of Ecology (Ecology), from the Liquor and Cannabis Board (LCB), effective July 1, 2022.
    • Requires Ecology to determine, assess, and collect an annual fee to cover the direct and indirect costs of implementing the marijuana product testing laboratory accreditation program, subject to requirements.
    • Establishes the Cannabis Science Task Force (Task Force), to collaborate on the development of appropriate laboratory quality standards and to establish a work group on proficiency testing and another work group on laboratory quality standards.
    • Requires the Task Force to submit a report to the Legislature by December 2020, with findings and recommendations for laboratory quality standards for cannabis testing laboratories.
    • Requires Ecology to adopt rules, in consultation with the LCB, to implement the new marijuana product testing laboratory accreditation program.
  • Chair Derek Stanford, who sponsored the measure, offered the bill because “we are moving into a world where we will have cannabis products routinely tested for pesticides, heavy metals, and other contamination.” He said it was important for consumer safety to have “capacity of labs and trust in the system.” Stanford concluded that reliable laboratory accreditation would create a good foundation for the industry’s future (audio – 1m, video).
  • Vicki Christophersen, Executive Director and Lobbyist for WACA, praised Stanford’s assessment and shared “strong support” for an issue she claimed her group had worked on for years. She stated appreciation for what labs had done, but that the industry needed “comprehensive” changes to accreditation so that licensees, consumers, and the legislature could rely on the results. She predicted implementation delays would hurt the industry and “the public at large,” and added her group was reviewing the bill and might suggest technical changes (audio – 2m, video).
  • Carol Smith, Environmental Assessment Program Manager for the Department of Ecology, shared concerns about the timelines in the law for the Task Force while offering her agency’s support of strong accreditation standards. “We support it in concept,” she said. Acknowledging Ecology’s scientific expertise and the value of accreditation, Smith said the “gaps” the bill sought to address suffered from a “timing challenge” created by a lack of federal guidelines commonplace in other industries, standards that would need to be developed in-state for cannabis. Smith claimed these “key building blocks” for “lab standards, methods, and protocols” would take longer to create than projected in HB 2052. Smith predicted it would take two years before the department was ready to begin rulemaking. She recommended maintaining current accreditation practices for the duration of the work outlined in the bill (audio – 3m, video).
  • Seth Dawson returned to speak in favor of HB 2052. He reminded committee members WASAVP testified in opposition to the home grow bill, but his organization was hopeful that the consumer safety concerns raised in that hearing could be addressed with improved lab standards. “[We] didn’t like legalization, but once it is a legal product I think there’s an obligation to the public that we put forth products that have proper quality and are safe.” Dawson wrapped up by saying it was a “logical shift” to move responsibility for lab accreditation out of WSLCB to free up the agency to focus on other regulatory responsibilities and enforcement (audio – 1m, video).
  • Jedidiah Haney, Executive Director of The Laboratory Guild, supported the bill to fix accreditation before it became “a public health safety crisis.” Haney expressed concern about funding the bill’s “program development costs,” saying higher lab costs would be passed on to licensees and consumers. He advocated amending the bill to specify shared funding responsibility between the state and labs (audio – 2m, video).
  • Jeff Doughty, CEO of Capital Analysis and President of the Laboratory Guild, said the bill was a “very large step towards trust in the market” which mattered because “a lack of trust drives people into the illicit market.” He believed the bill would help facilitate “defensible data” businesses could rely on in court. Doughty agreed with Haney’s implementation cost concerns but did not share Smith’s faith in the status quo: “Currently, we don’t have a good standard, and the quicker that we can move to a good standard the better protected people are going to be, the more trust we’re gonna have in the market” (audio – 2m, video).
  • Larry Ward, Founder and CEO of Testing Technologies, represented support from The Cannabis Alliance to improve lab standards. He commended WSLCB’s past efforts, including hiring R.J. Lee to conduct laboratory accreditation, but looked forward to the “competent, qualified, and honest” quality assurance system he felt HB 2052 would help bring about. Ward suggested inclusion of “other industry representatives” in the Task Force to offer logistical perspectives that were “germane” to business functions but not lab operations (audio – 3m, video).
    • After Ward suggested committee members ask him about potential alternative funding methods for the bill, Representative Jenkin asked for elaboration. Ward offered parallels from his previous experience with the State Building Code Council (SBCC). He said new SBCC standards must let a legislative session pass before becoming effective, giving lawmakers opportunity to intercede. He noted a fee attached to every building permit in the state funded SBCC activities, and a “transaction” tax on each consumer cannabis sale might achieve similar funding goals (audio – 2m, video).
  • Amber Wise, Scientific Director at Medicine Creek Analytics and co-chair of The Cannabis Alliance’s Science and Standards Committee, urged passage of the bill. She spoke favorably of Ecology’s experience in lab accreditation and suggested the equipment and processes in cannabis facilities were comparable. Wise said current accreditation had many “shortfalls” the Task Force could address and pointed to the bill’s support from the very people it would regulate as evidence of a “high standard” it would bring to the industry (audio – 3m, video).
  • Shannon Stevens, Laboratory Director at Confidence Analytics, followed up on Wise’s comments regarding deficiencies in the current system. She claimed the Cannabis Inflorescence and Leaf monograph, a document published by the American Herbal Pharmacopoeia, was insufficient guidance for labs because it focused mostly on testing cannabinoids, not other contaminants. As labs have developed differing standards and methods for verifying standards, Stevens supported the formation of a Task Force to facilitate uniformity of practice (audio – 2m, video).
  • Tania Sasaki, a scientific consultant for Confidence Analytics, spoke to the need for new requirements and programs. She explained, “The current proficiency test programs neither appropriate [sic] evaluate a laboratory’s ability to provide quality testing and accurate results, nor mimic the true testing conditions.” Sasaki supported transferring authority to Ecology and agreed with the funding concerns raised earlier. She said the Task Force’s offering of recommendations and solutions could ensure “quality testing, accurate results, and most importantly, consumer health and safety” (audio – 2m, video).
  • Scott Riefler, VP of Science for Tarukino, a processor of infused foods and drinks, supported HB 2052 with some concerns. He spoke to cannabis edible product safety, particularly products with low-doses of THC which suffered from inconsistency as no accredited lab had low-dose testing standards. Riefler said high-dose and low-dose testing methodologies should not be identical. He also faulted sampling regimes which permit single-plant testing for an entire crop and advocated for composite or aggregate sampling methods instead. Finally, Riefler suggested the bill’s Task Force be amended to explicitly include experts with food industry experience (audio – 6m, video)
  • Kelly McClain, Senior Policy Advisory for the Washington State Department of Agriculture (WSDA), signed in as “other” because the bill’s fiscal impact hadn’t been factored into the Governor’s proposed budget. Because of the agency’s past partnership with WSLCB on testing and food safety, she assured the committee WSDA would participate and lead their delegated workgroup. Saying the bill would help “consistency, quality, and consumer protection on cannabis products” McClain claimed WSDA would implement the bill as drafted and follow up with the committee once the fiscal impact was clear (audio – 1m, video).
  • Chris Thompson represented WSLCB in support of the bill. He indicated Ecology was better equipped to handle lab accreditation and was grateful for WSDA’s partnership. Observing that past bills had paid for the effort with licensee fees, “I think an argument could be made to look at the marijuana fund” or “consumers as a whole” to pick up the tab for the law. Thompson urged expediency but said the agency would accept the legislated timeline (audio – 2m, video).
  • Representative Melanie Morgan wondered if the fee identified in the bill was a new or existing one for licensees. Thompson responded that there was a lab fee assessed and handled by R.J. Lee, but any new costs from recommendations or the Task Force activity would need to be funded. Morgan asked about “an annual fee to cover the direct and indirect costs” cited in the bill summary. Thompson assumed the fee would apply to the labs and be managed by Ecology once the program was operational (audio – 3m, video).
• The committee took executive action on HB 1236 and HB 1792, and relayed both bills out of committee with “Do Pass” recommendations.
  • On January 28th, the committee hosted a public hearing for HB 1236, “Concerning the ability of business and nonprofit entities to obtain a marijuana license.”
  • The committee was briefed by staff on a proposed substitute bill for HB 1236 and an amendment to the substitute, both sponsored by the bill’s prime, Chair Stanford (audio – 3m, video); from the proposed substitute bill memorandum:
    • Restores the six-month residency requirement for marijuana licenses, and creates a new exception to the six-month residency requirement for businesses with labor peace agreements in effect.
    • Creates an exception to the five-license limit for marijuana retailer licenses, to allow retailers with labor peace agreements to be eligible for up to seven total licenses.
    • Requires a similar exception to any license limit established by Liquor and Cannabis Board (LCB) rule for individual marijuana producers or processors, for producers or processors with labor peace agreements in effect (to hold up to 2 additional licenses than otherwise allowed under LCB rule).
    • Limits LCB rulemaking regarding the above provisions.
    • Specifies that natural persons who are not required to qualify for or be named on a marijuana license are not required to be Washington state residents.
    • Requires the names of natural persons owning 10 percent or less of the business but more than one percent of the business to be disclosed to the LCB.
    • Adds provisions addressing inheritance of a business with a marijuana license.
    • Defines “labor peace agreement” and other terms.
    • Retains other provisions of the original bill, like the LCB’s authority to impose additional license fees to recover investigatory costs of nonresidents requiring investigation.
    • Adds a savings clause.
  • The amendment to the substitute included three changes:
    • Licensees with labor peace agreements in effect with natural persons who don’t need to be named on or qualify for a licenses (under the bill, those who own 10% or less) don’t have to be Washington residents.
    • Licensees without labor peace agreements must be entirely owned by Washington residents regardless of how much of the license a person owns.
    • Lastly, the amendment mandates disclosure to WSLCB of the identification rather than the name of any person owning 1-10% of a license.
  • Representative Brandon Vick asked about the benefits licensees with labor peace agreements would receive. Clodfelter said licensees with such an agreement could own more retail licenses (an increase from five to seven) and that people with ownership stakes below 10% wouldn’t have to be on the license or a Washington resident. Licensees without these agreements could have owners with less than 10% stake in the business that didn’t have to be on the licenses, however these individuals would have to be Washington residents (audio – 2m, video).
  • Both the proposed substitute and the amendment were passed by the committee despite discussion about the “difficult bill” from Representatives Vick, Shelley Kloba, and Jesse Young (audio – 5m, video).
  • The committee passed HB 1792 unanimously following favorable comments from Stanford and MacEwen (audio – 3m, video).