WA Senate LC - Committee Meeting
(February 9, 2023)

Here are some observations from the Thursday February 9th Washington State Senate Labor and Commerce Committee (WA Senate LC) Committee Meeting.

My top 3 takeaways:

• WA Senate LC Counsel Matt Shepard-Koningsor provided the briefing on SB 5377, “Concerning cannabis license ownership” (audio - 2m, video).
  • Out-of-state ownership of cannabis licenses was prohibited in law by Initiative 502, though there had been repeated attempts to change the policy and it had been cited by cannabis industry stakeholders as a prime method for businesses to find capital investment.
  • Owing to a tight agenda where non-cannabis bills had more people signed up to testify, Committee Chair Karen Keiser combined the hearings on SB 5733 and SB 5546, “Establishing a Washington state cannabis commission,” noting many speakers wanted to testify on both bills. While combined hearings were not without precedent when two bills had similar topics, SB 5377 and 5546 had little overlap beyond both pertaining to cannabis licensees, leading to testimony sign-in sheets that were less reflective of who actually spoke on both bills.
  • Reviewing the bill analysis, Shepard-Koningsor described the implications of the proposal:
    • 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 under certain conditions related to federal legalization of cannabis. 
    • Authorizes out-of-state ownership of licensed cannabis businesses. 
    • Modifies requirements regarding who must qualify for and be named on a cannabis license.
    • Permits LCB to impose additional licensing fees to recover costs associated with investigating certain non-residents.
  • A fiscal note from WSLCB showed costs of $699,939 for fiscal years (FY) 2024-25, and costs of $511,016 in subsequent fiscal bienniums spread across board staff, licensing, enforcement, and information technology divisions of the agency.
  • The validity of state rules requiring residency in order to hold a cannabis license were upheld in federal and state lawsuits brought by Idaho businessman Todd Brinkmeyer against WSLCB. Leaders discussed the case on February 8th.

• Testimony from some in the cannabis sector backed the move to expand ownership of licenses to those outside of the state, positing the restriction was no longer serving its intended purpose.
  • 11 individuals registered their support of the bill (testifying, not testifying).
    • Brandon Park did not sign in for SB 5377, but provided support for the bill during his testimony on SB 5546.
  • Senator Ann Rivers, primary sponsor of the legislation, opined “it's been over 10 years since we started this journey, we are considered a veteran in the adult general use cannabis market, but there's something that's holding us back, and that is the access to capital from other states.” She remarked that “we are the only state currently engaged in the sale of cannabis who has limited its entrepreneurs from being able to engage” in out-of-state ownership, putting “our place on what has now become a global stage in jeopardy.” Rivers credited WSLCB staff “and others” for helping develop the bill, arguing “this business has been legitimized by people who are honestly trying to do the right thing to keep cannabis out of the hands of kids, and to meet a demand that exists in our state.” She then said the “questions on intricacies” of the bill would be “addressed by the proponents and…maybe some opponents” (audio - 2m, video).
    • Keiser noted the group had “heard this before, and I think we're pretty well versed in this issue” (audio - <1m, video).
    • At time of publication, Alaska law also required owners of cannabis licenses to be residents of that state.
  • Several existing cannabis licensees and trade association representatives made a case that limits on ownership could be compared to creating an “incubator" that had become "a cage,” arguing the bill was an attempt at “leveling the playing field.”
    • Andy Brassington, Evergreen Herbal President and Washington CannaBusiness Association (WACA) Board of Trustees Vice President (audio - 2m, video)
    • Vicki Christophersen, WACA Executive Director and Lobbyist (audio - 2m, video)
      • Christophersen noted that since "big money is out there, and big money is deploying," cannabis companies “whether they are in business now or could become in business as a result of other legislation” would benefit from investment by sharing their licenses with parties outside of Washington.
      • “We do have a provision in the bill that deals with the oversupply issue we've all been talking about,” she explained, so the bill addressed “hundreds of producer licenses that are unused” and should be held “in suspension until such time as federal legalization occurs.” This change needed a “technical fix” to specify a timeframe for inactivity “to make sure that it can't be manipulated,” added Christophersen.
    • Ezra Eickmeyer, Producers Northwest Executive Director (audio - 3m, video)
    • Eric Gaston, Evergreen Market Co-Founder and Craft Cannabis Coalition (CCC) Chair (audio - 3m, video)
    • Lukas Hunter, Harmony Farms Director of Compliance (audio - 2m, video)
    • Brandon Park, Hygge Farms Co-Owner (audio - 1m, video)
    • April Roth, Soulshine Cannabis and Cannaseur's Choice Director of Operations (audio - 2m, video)

• Other industry members and concerned citizens took issue with possible effects on smaller businesses—and the as-yet-unawarded social equity licensees—along with concerns over lack of previous action by regulators.
  • 24 individuals registered their opposition to the bill, and four signed in with a position of ‘other’ (testifying, not testifying). 
  • Shawn DeNae Wagenseller, Washington Bud Company Co-Owner, The Cannabis Alliance and Washington Sun and Craft Growers Association (WSCA) Board Member, thought that smaller businesses were unlikely to attract “international corporations” as investors and would be "wiped out.” She further felt that "we did small on purpose” and out-of-state financing was already permitted in rule (audio - 4m, video).
  • Two speakers from Black Excellence in Cannabis (BEC) objected to existing retailers having a "head start" in the market and search for investors. They preferred to "take care of our people first" by getting social equity licenses issued and businesses open before changing ownership laws.
    • Mike Asai, BEC Vice President (audio - 2m, video)
    • Peter Manning, BEC Co-Founder (audio - 2m, video)
  • Concerned citizens Jim MacRae and John Worthington were opposed to SB 5377.
    • MacRae said what made producers active wasn’t defined and suspending them wasn’t “urgent” because WSLCB already “licensed 17.7 million square feet of maximum canopy.” He also viewed the bill as a “get out of jail free card for the people who broke that law and broke those rules over the last seven years” asserting such operators had not faced penalties from regulators (audio - 2m, video, written testimony). 
    • Worthington perceived no benefit in having “regulators and enforcement under the same roof” and didn’t want WSLCB leaders to “leave a body trail of small business.” He wanted to see local governments have a stronger role in cannabis business oversight, as he believed the agency had “been a disaster” (audio - 1m, video). 
  • Two speakers didn’t offer a position on the bill out of a desire to see changes, or due to a lack of consensus among their organization’s members:
    • Falcanna Owner and WACA member Bethany Rondeaux called for a clear end date for the activity clause and language to stop producers from updating previous reports to the Washington State Department of Revenue. “I understand there's language being worked on by WACA to address this issue and I'm supportive of their efforts,” she remarked (audio - 3m, video).
    • Cannabis Alliance Executive Director Burl Bryson conveyed that his members were “equally and passionately divided on whether or not it is time” for out-of-state ownership (audio - 2m, video).

Here are some observations from the Thursday February 9th Washington State Senate Labor and Commerce Committee (WA Senate LC) Committee Meeting.

My top 3 takeaways:

• WA Senate LC Counsel Matt Shepard-Koningsor presented on SB 5546, “Establishing a Washington state cannabis commission” (audio - 2m, video).
  • The concept of a cannabis agricultural commission overseen by the Washington State Department of Agriculture (WSDA) had been proposed in legislation for several years, with the most recent effort in 2022 being HB 1710.
  • Owing to a tight agenda where non-cannabis bills had more people signed up to testify, Committee Chair Karen Keiser combined the hearings on the bill SB 5466 SB 5733 and SB 5377, “Concerning cannabis license ownership” noting many speakers wanted to testify on both bills. While combined hearings were not without precedent when two bills had similar topics, SB 5377 and 5546 had little overlap beyond both pertaining to cannabis licensees leading to testimony sign-in sheets that were less reflective of who actually spoke on both bills.
  • Shepard-Koningsor provided reviewed the bill analysis and fiscal note:
    • Establishes the Washington State Cannabis Commission (Commission), consisting of cannabis producers, producer/processors, and the Director of the Washington State Department of Agriculture (WSDA).
    • Establishes purposes of the Commission, and grants the Commission powers and duties.
    • Includes certain oversight of the Commission by the Director of WSDA, and requires the Commission to reimburse agency costs.
    • He commented on the commission’s structure, including that they would be “funded through assessments on producers and producer/processors beginning October 1st, 2023. The assessment is as follows: on each producer who is not assessed a producer/processor fee, .29% of all sales revenues, and on each producer/processor, .145%” collected by the Washington State Liquor and Cannabis Board (WSLCB). Fiscal analysis by WSLCB staff stated their costs would be “reimbursed by the commission, and their estimated cash receipts of $1.7 million to the commission based on the assessments,” Shepard-Koningsor reported.
    • The hearing was on a proposed substitute draft to the bill published on February 1st, though a description of the changes from the original legislation text wasn’t released at time of publication. Placing the bills side-by-side for comparison showed several additional definitions and more detail on the membership and function of the commission, among a broad array of reorganizing and restructuring of the bill sections.
  • Senator Mark Schoesler asked about the initial election process for commissioners, as well as whether the scope of their work was research alone or “research and marketing.” Shepard-Koningsor replied it would allow for both research and marketing, making it similar to the functions ofseveral othercommodity commissions (audio - 1m, video).
    • Section 3 of the bill outlines reasons to establish the commission and doesn’t include mention of advertising, promoting, or marketing of cannabis as a function of the group.

• After the bill sponsor made the case that a cannabis commission would be “doing the research that industry knows it needs," several people testified to potential positive outcomes for participating licensees and the wider market.
  • 63 individuals registered their support of the bill; two individuals registered a position of ‘other’ on the bill (testifying, not testifying).
  • Senator Sharon Shewmake, the primary sponsor of the proposal, disagreed with Shepard-Koningsor’s​​ answer to Schoesler’s question, “there's not marketing in this cannabis commission, and that was by design, and that's because the reason I got involved in this topic is just because I love agricultural research. It's been an incredible force in our economy.” (audio - 4m, video)
    • Shewmake had seen federal authorities conduct “about two thirds” of agricultural research, but since cannabis remained a schedule 1 controlled substance, none of this occurred with cannabis production. “They can't do basic research and development and that's been holding the industry back on a number of things,” she said, naming “basic nutrient management, how to safely use pesticides, how we can better protect workers” as topics meriting study. She noted that even when there was federal and state research money “they still also have a commission that does research because it's so incredibly valuable.”
    • Shewmake appreciated how commodity commissions facilitated “industry doing the research that industry knows they need. That means they know to ask the right questions and it ends up being practical, it ends up being used.” She cited a January 17th performance audit by the Office of the Washington State Auditor for the Washington State Joint Legislative Audit and Review Committee (JLARC) which found a “majority of producers have been happy with the work that [commissions] do, not 100%, and you'll hear some dissent today. But I would point out that none of us get a hundred percent on the ballot either and yet we still go off and we do good work.”
      • Learn more about the audit from this two page summary and a video from the presentation of the audit to JLARC on February 1st.
    • “Unlike some of the Ag commissions, we didn't include marketing,” remarked Shoemake, due “partially to the sensitive nature of cannabis, but also because this is new and that need for research and development is just so incredibly dire.” She mentioned having worked on the legislation “for four years, advocates have been working for it for seven, and just imagine how much research that we would have already done if we started back then.” Shewmake said the money raised “does go pretty far,” offering the example that under the bill for a cannabis “farmer with about a million dollars in products, it would cost them about $100 per year…I think it's a really reasonable fee to pay into something that ends up being this public good.”
    • Shewmake closed with a suggestion that “if you think federalization is coming, this is our opportunity to put that imprint of our values” on policies such as worker safety. “It's hard to keep workers safe if you don't know what's causing the problems, and so we need to do some basic research and development there. How do we mitigate externalities? If y'all's district is like mine, you've heard people complain about cannabis odor.” She thought a commission could fund study of “environmental stewardship of water…and energy.” Shewmake concluded, “this is an opportunity for Washington to look at this new nascent industry and figure out how to make it fit our values and just do some basic good government, some research and development” to let “producers figure out what they need to go forward.”
    • Schoesler asked about the process for raising assessments on licensees, and Shewmake deferred to WSDA Policy Advisor to the Director and Legislative Liaison Kelly McLain to describe the system (audio - 1m, video).
  • People backing the legislation included cannabis business representatives and citizens who predicted better crop research would result from a commission that would be “affordable” for any size producer, could help “social applicants in the future," and potentially have the commission do more of the “regulatory part” of cannabis production.
    • Burl Bryson, Cannabis Alliance Executive Director (audio - 2m, video)
    • Lara Kaminsky, Cannabis Alliance Government Affairs Liaison (audio - 1m, video)
    • Peter Manning, Black Excellence in Cannabis Co-Founder (audio - 2m, video)
    • Shawn DeNae Wagenseller, Washington Bud Company Co-Owner, The Cannabis Alliance and Washington Sun and Craft Growers Association (WSCA) Board Member (audio - 4m, video)
    • John Worthington (audio - 1m, video) 
  • Kelly McLain testified as ‘other’ on behalf of WSDA, stating the department had been working with backers of the legislation for years so that “previous issues…have been addressed, including limiting the scope of the work of the commission.” She told lawmakers that “cannabis growers continue to struggle” with research into areas like pest management or plant genetics, “and those would normally be addressed by large land grant universities. The absence of those research venues” due to federal prohibitions “makes growing the plant more difficult.” McLain added that a “research focused, industry-funded commission is one way this could be addressed similar to the Washington State Tree Fruit Research Commission (audio - 1m, video).
  • Amirah Ziada, UFCW 3000 Cannabis Organizing Coordinator, also testified as ‘other’ owing to concerns that of the “13 members…on the commission, there are no labor representation or workers on the committee.” She was aware “they don't do that with agriculture…but if the proposed cannabis commission would be tasked with providing…education and training to employees, and including health and safety information,” she asked, “wouldn't we want to ensure that workers have a say in advising the LCB?” (audio - 2m, video)

• Opposition to SB 5546 related to the fees imposed on licensees and whether the idea should wait until after formalizing interstate cannabis commerce.
  • 50 individuals registered their opposition to the bill (testifying, not testifying).
  • A different group of cannabis licensees and lobbyists felt “a lot of producer processors are not bought into this yet.” They advised waiting until the commission could also handle marketing under an interstate market, and conduct “research that would be beneficial to the industry as a whole” that isn’t “cost prohibitive, or is already being conducted by other entities.”
    • Andy Brassington, Evergreen Herbal President and Washington CannaBusiness Association (WACA) Board of Trustees Vice President (audio - 2m, video)
    • Vicki Christophersen, WACA Executive Director and Lobbyist, argued that commodity commissions “really become valuable for an industry when the commission can advertise how great Washington products are to the rest of the world.” She alleged that after talking with her members, including the “smallest of the small in many cases,” that a “thousand dollars is, could be a tipping point and right now, with oversupply and prices as low as they are, producers are struggling, any added cost is just not warranted right now.” She advised including the commission as part of a bill on interstate commerce of cannabis, “because when federal legalization occurs, that's the appropriate time to discuss that” (audio - 2m, video).
      • Keiser inquired whether Christophersen felt there was a “need for research.” Christophersen did, “but what we really need is peer-reviewed institutional research” and while a “little bit” was happening, the need would increase were cannabis to become federally legal. She commented there might be “some small studies that could happen” with the assessments collected from producers, but as “I read the bill the fees can be raised by the commission itself and I will agree with…the position that our industry is not united yet on wanting this.” Christophersen asked for more stakeholder work and mandated legislative approval to alter assessment fees since “we don't have any confidence that the fees wouldn't continue to get raised” (audio - 1m, video).
      • Schoesler asked Christophersen with whom a commission could contract for research. She presumed it “would have to go to private sector entities that don't take federal funding.” Schoesler mentioned the models of having fee changes approved by the legislature, or through a “petition and then a supermajority of the producers.” Christophersen replied that her “understanding— there have been various iterations of this bill…but my recollection is this version is a commission-based” model (audio - 2m, video).
    • Ezra Eickmeyer, Producers Northwest Executive Director (audio - 3m, video)
    • Brandon Park, Hygge Farms Co-Owner (audio - 1m, video)
    • Bethany Rondeaux, Falcanna Owner  (audio - 3m, video)