WA House COG - Committee Meeting
(January 28, 2019)

Here are some observations from the January 28th Washington State House Commerce and Gaming Committee (WA House COG) Committee Meeting.

My top 3 takeaways:

• The Committee hosted a public hearing for HB 1237, “Reforming the compliance and enforcement provisions for marijuana licensees.”
  • Committee Counsel Peter Clodfelter walked committee members through the legislation (audio – 2m, video). From the House bill analysis:
    • Modifies how the Liquor and Cannabis Board (LCB) may enforce laws and rules against regulated marijuana businesses, and how these businesses may comply with laws and rules.
    • Requires rulemaking by the LCB regarding enforcement procedures, with specific components, such as to address de minimis violations.
    • Requires and authorizes rulemaking by the LCB regarding penalties, with limits, such as on the effect of cumulative violations, and on what types of violations may result in license cancellation when a heightened evidentiary standard is met.
    • Requires the LCB to consider aggravating and mitigating circumstances, and to deviate from prescribed penalties accordingly.
    • Limits the LCB’s authority to issue violations in certain circumstances involving unpreventable employee misconduct, if the licensee has a documented, thorough internal-compliance program.
    • Prohibits the LCB from considering any violation from before June 30, 2018, as grounds for negative licensing actions, except for specific types of violations, including sales to minors and diversion of product, when a heightened evidentiary standard is met.
    • Modifies the settlement conference and agreement process to make settlement agreements binding in certain circumstances.
    • Makes certain new provisions expire in 2024.
  • Representative Steve Kirby, the bill’s prime sponsor, said he was attempting to address concerns he’d heard from licensees (audio – 3m, video).
  • Vicki Christophersen, Executive Director and Lobbyist for the Washington CannaBusiness Association (WACA), supported the bill saying some licensees were afraid to testify in favor. Christophersen said that complaint-based enforcement encouraged competitors and disgruntled former employees to waste agency time with unjustified complaints. She told members the language was based on reforms to Labor and Industries (L&I) enforcement practices from the 1990s (audio – 2m, video).
  • Chris Masse, Partner at Miller Nash Graham and Dunn, said she supported the legislation in part because there was currently no reason for licensees to make good-faith efforts to self-report mistakes. She supported “restructuring” the violation system to help them (audio – 2m, video).
  • Emily Lade, CFO of Smokey Point Productions, spoke about her brother’s cannabis farm, The Clone Zone, and it’s restraining order against WSLCB over violations that were “minor clerical issues.” She called on the committee to pass the bill (audio – 5m, video).
    • For a perspective on the potential cancellation of The Clone Zone’s license and the company’s relationship to Smokey Point Productions and Rolling Farms, see The Daily Herald’s January 22nd article.
  • Wendy Hull, CEO of Fairwinds, testified that different WSLCB enforcement officers give different answers to compliance questions and minor citations could be viewed negatively by a licensee’s bank. She urged passage of the bill (audio – 2m, video).
  • Andy Brassington, CFO for Evergreen Herbal, argued WSLCB’s culture “fosters the wrong spirit” of issuing violations rather than helping licensees achieve compliance (audio – 2m, video).
  • Tammi Hill, Corporate Counsel for CannEx Capital Group, said Northwest Cannabis Solutions, one of Washington’s largest producers, faced losing their license because the owner injected their own money into the business before getting WSLCB’s approval, a policy the agency was already reforming (audio – 3m, video).
  • Chris Thompson, Director of Legislative Affairs for WSLCB, spoke in opposition saying the agency had begun rulemaking on this topic. He raised concerns about the wording of “de minimis” and “relationship to safety” in the bill, the broad amnesty for offences, and cost of implementation (audio – 3m, video).
  • WSLCB Board Member Russ Hauge showed up to testify against the legislation. “We don’t cancel licenses for clerical errors,” Hauge assured the committee. He disputed previous descriptions of The Clone Zone’s violations as minor, saying the licensee had gone through the agency’s hearing process already. If adopted, Hauge speculated that the agency’s ability to review and act on violations would “slow down to a halt.” Several questions from the committee followed (audio – 23m, video).
    • Representative Kirby wondered what could be done to focus on rule compliance over merely issuing citations and violation notices. Thompson said the collaborative consulting the bill envisioned was done by WSLCB already, and the changes at L&I were not adopted “in lieu of enforcement.”
    • In responding to a question about forgiving small offenses, Hauge admitted their initial penalty matrix was developed “in a vacuum” and that some rules were more or less serious than originally envisioned. He also agreed violations resolved with compromises shouldn’t stay on a licensee’s permanent record and assured Vice Chair Kristine Reeves the agency’s review process for alcohol violations matched its approach to cannabis violations.
    • Saying WSLCB was “reluctant to overhaul based on a few licenses,” Thompson promised Kirby to work with him on problems with the agency’s “culture.” Vick said that amnesty, definitions, and cost to the agency were the main concerns he heard raised.
  • Caitlein Ryan, a licensee and Adjunct Board Member with The Cannabis Alliance, opposed amnesty provisions and told members an agency culture emphasizing education and compliance could still target the industry’s bad actors (audio – 2m, video).
  • Shawn DeNae Wagenseller, CEO of Washington Bud Company and lead organizer for the creation of a Washington State Cannabis Commission, outlined the current violation and appeals process and concluded, “we don’t need a law to fix it.” She also opposed a violation amnesty (audio – 2m, video).
  • Arthur West, an Olympia cannabis activist, opposed amnesty efforts and said the bill confronts WSLCB’s “gotcha mentality” but its changes diminish the “bright line standard” between good and bad actors in the industry (audio – 2m, video).
  • Seth Dawson, lobbyist for the Washington Association for Substance Abuse and Violence Prevention (WASAVP), testified “other” saying he liked WSLCB’s results around enforcement—particularly minimizing sales to youth—and that stakeholder consensus on the proposed changes was also important (audio – 1m, video).

• The Committee hosted a public hearing for HB 1236, “Concerning the ability of business and nonprofit entities to obtain a marijuana license.”
  • Peter Clodfelter outlined the basics of the bill (audio – 1m, video). From the House bill analysis:
    • Eliminates the six-month residency requirement for marijuana licenses.
    • Authorizes out-of-state ownership of licensed marijuana businesses, subject to restrictions.
    • Requires out-of-state businesses to be registered with the Secretary of State to qualify for a marijuana license.
    • Requires natural persons owning more than 10 percent of the business to qualify for and be named on the license.
    • Requires officers and directors to qualify for the license to the same extent as a licensee.
    • Provides that, generally, natural persons owning 10 percent or less of the business are not required to qualify for or be named on the license.
    • Authorizes the Liquor and Cannabis Board (LCB) to impose additional licensing fees to recover investigatory costs.
    • Grants the LCB discretionary authority to deny license issuances and renewals when the LCB is unable to investigate any nonresident requiring investigation.
  • Committee Chair Derek Stanford was HB 1236’s sponsor; he said the bill dealt with important questions facing the industry (audio – 1m, video).
  • Vicki Christophersen said WACA “strongly” supported the bill because the industry needed access to capital that out of state investors could offer (audio – 2m, video).
    • Representative Shelley Kloba asked how out of state investment would impact overproduction of cannabis. Christophersen said the topics were “unrelated” and compared the market to wine, saying the kind of products and how much of them would be judged by the market. Kloba questioned those parallels because of limits from federal prohibition. Christophersen said the bill helped Washington “be positioned to compete” once federal prohibition of cannabis ended (audio – 4m, video).
  • Chris Masse said Washington and Alaska were “outliers” on the issue. While attending MJBizCon, Masse said investors from roughly 70 nations were passing over Washington’s market because of the prohibition on out of state ownership (audio – 1m, video).
  • Scott Atkison, an owner of retailer Zips Cannabis, said he wanted to share the proceeds of his business with some employees but couldn’t because they lived out of state (audio – 2m, video).
  • Tammi Hill told the committee “in this debate, I am the bogeyman. I represent the capital that I want your state to have access to.” In pushing for passage, Hill said CannEx had gone public on the Canadian Securities Exchange last year using the strength of Washington state assets which, while valuable, “don’t have the capital to realize that value” (audio – 2m, video).
  • Andy Brassington said he was a strong supporter and the policy “creates no losers, only winners.” (audio – 2m, video).
  • Mike Redman, owner of The Green Lady in Olympia, supported the bill saying it would expand the value of licenses (audio – 3m, video).
  • WSLCB’s Chris Thompson spoke in opposition, saying the agency had relaxed ownership rules already and that they could feel comfortable with exemption for identified investors who are not majority owners of a license (audio – 2m, video).
  • Philip Dawdy, representing Seattle licensee Have-a-Heart, described his opposition as “soft” and that the bill could go further by addressing inheritance rights and improving workplace standards (audio – 1m, video).
  • Shawn DeNae Wagenseller opposed the bill over “hidden ownership concerns.” This lead to several questions and comments from committee members (audio – 11m, video).
    • Representative Jesse Young said he’d like to see “parameters” around vertical integration of licenses. Thompson said the agency hadn’t had that discussion, but that investor identification is a minimum, and they’d prefer to see a requirement for in-state majority ownership.
    • Representative Melanie Morgan inquired how many licensees were racial minorities; Thompson couldn’t readily answer.
    • Kloba agreed the number of business owners not investigated should be limited because I-502 voters supported licensee vetting in the 2012 initiative.
    • Reeves and Morgan wondered about previous marijuana misdemeanor convictions diminishing market involvement by minorities.
  • Arthur West said there was still in-state capital that could help the market and that out of state money was likely to hurt smaller businesses (audio – 1m, video).
  • Alden Linn, owner of Tacoma retailer World of Weed, told members he opposed the bill, predicting industry consolidation and greater hardship for his shop’s vendors (audio – 2m, video).
    • Ranking Member Representative Drew MacEwen noted that businesses often dislike competition, but that it was good for the industry generally. Young agreed bringing in capital shouldn’t occur without oversight, but wondered how many in the industry needed to “stand up” before outside funding was acceptable. Linn countered the brewing industry took longer (audio – 5m, video).
  • Bryan McConaughy, lobbyist for the Washington SunGrowers Industry Association (WSIA), testified as “other” saying he liked being able to recoup investment costs but thought WSLCB needed discretion to not renew licenses with open financial investigations (audio – 1m, video).
  • Caitlein Ryan argued outside money was already a factor and encouraged the legislature to “shine a light on money coming in” to know how much and to whom it was going (audio – 1m, video).

• The Committee hosted a public hearing for HB 1289, “Concerning marijuana businesses.”
  • Clodfelter framed HB 1289 (audio – 2m, video). From the House bill analysis:
    • Establishes exceptions to the six-month residency requirement, and to the five-license limit for retailers, for marijuana businesses with labor peace agreements in effect.
    • Requires a similar exception to any license limit established by Liquor and Cannabis Board (LCB) rule for individual marijuana producers and processors, for producers and processors with labor peace agreements in effect.
    • Requires any marijuana business relying on the new authorizations tied to having and maintaining a labor peace agreement to enter or make a good-faith effort to enter a collective bargaining agreement within 150 days of opening.
    • Includes provisions authorizing holding companies to provide certain defined “management services” to licensed marijuana businesses under common ownership.
    • Authorizes the LCB to define additional “management services” by rule, limits the LCB’s rulemaking authority in other respects, and defines relevant terms.
    • Includes provisions addressing inheritance of a business with a marijuana license.
  • Chair Stanford sponsored HB 1289. He acknowledged some of the bill’s overlap with previous legislation heard (audio – 1m, video).
  • Sarah Cherin, Assistant to the President of UFCW 21, supported the bill, saying the labor peace agreements give employees a true choice (audio – 2m, video).
  • Ryan Kunkel, founder of retailer Have-a-Heart, spoke favorably saying worker agreements represented investment in the quality of life of employees. He also urged removing the cap on the number of retail licenses a person could own (audio – 1m, video).
  • Lucas Wong, a Have-a-Heart employee, said the collective bargaining agreement at his job made him feel safe and able to speak up (audio – 2m, video).
  • Brie Woods, a Have-a-Heart staffer and UFCW member, argued “workers need the same protections” found in other industries (audio – 2m, video).
  • April Simms, speaking on behalf of the AFL-CIO, said she was “very supportive” of the bill on the grounds of equity and the benefits to workers “abused” under the current system (audio – 3m, video).
  • WSLCB’s Chris Thompson supported labor peace agreements, but said his agency wants an in-state requirement and has concerns about raising the retail license limit. He signed in as “other” expressing some concerns over unionization (audio – 1m, video).
  • Adam Smith, owner of Arlington producer/processor Avitas and recent petitioner to the WSLCB regarding cannabis overproduction, urged the committee to address oversupply first. He argued a percentage of ownership was not the best measure of control over a license (audio – 2m, video).
  • Chris Stella-Purkey(?) of AV, LLC supported out of state ownership, but testified as “other” due to the unionization language (audio – 1m, video).
  • Bryan McConaughy opposed the measure arguing it would benefit one large company while hurting other small ones (audio – 1m, video).
  • Vicki Christophersen testified as “other” saying the labor standards in the bill were arbitrary and that funds of publicly traded companies were already regulated by the federal Securities and Exchange Commission (SEC) (audio – 1m, video).  
  • Arthur West spoke out against the bill saying it conflated ownership and labor issues needlessly (audio – 1m, video).
  • Philip Dawdy questioned who would invest in licensees without control and argued labor peace agreements were not equivalent to collective bargaining agreements (audio – 1m, video).
  • Due to time constraints, Chair Stanford cancelled the public hearing for HB 1238 and the scheduled Executive Session (audio – 1m, video).