WA House RSG - Committee Meeting
(March 14, 2023)

Here are some observations from the Tuesday March 14th Washington State House Regulated Substances and Gaming Committee (WA House RSG) Committee Meeting.

My top 4 takeaways:

• The revised SB 5080, “Expanding and improving the social equity in cannabis program,” was introduced and explained to the committee by staff (audio - 4m, video)
  • A request bill from the Washington State Liquor and Cannabis Board (WSLCB) that included certain recommendations from the Washington State Legislative Task Force on Social Equity in Cannabis (WA SECTF) was first heard as SB 5080 on January 10th by the Washington State Senate Labor and Commerce Committee (WA Senate LC). Substitute legislation was offered and recommended for passage on January 31st.
    • Next, the proposal was heard by Washington State Senate Ways and Means Committee (WA Senate WM) members on February 13th before being changed again on February 20th.
    • The second substitute bill was amended again before being passed by the Senate on February 28th.
    • At time of publication, the WSLCB social equity program was accepting applications for equity retail licenses until March 30th.
  • The engrossed second substitute version of the bill was presented by WA House RSG Counsel Peter Clodfelter, who termed it an "unofficial companion" to HB 1790 “which this committee heard on February 16th.” He relayed that there were similarities to that bill as well as many differences, and reviewed the impacts as outlined in the bill analysis:
    • Modifies the Cannabis Social Equity Program (Program) including: (1) extending the Program's expiration; (2) adding cannabis producer and processor licenses to the Program; (3) authorizing additional cannabis retail licenses to be issued through the Program; (4) requiring a thirdparty contractor to score applicants; (5) amending definitions; and (6) providing flexibility for the initial location of licenses in the Program. 
    • Waives annual license fees in the Program through July 1, 2032. 
    • Encourages all cannabis licensees to submit a social equity plan and provides a one-time reimbursement for the annual cost of a cannabis license for licensees submitting a plan.
    • Adds provisions authorizing certain local government objections to the issuance of cannabis retail licenses, and requiring the consideration of input from local governments on retail outlet density in establishing the maximum number of retail outlets that may be licensed in each county.
    • Requires a Joint Legislative Audit and Review Committee [JLARC] report by June 30, 2025, on whether current levels of cannabis production align with market demand and capacity.
  • A multiple agency fiscal note on the legislation forecast revenue to be generated by WSLCB, as well as a smaller amount by the Washington State Office of Administrative Hearings (WA OAH) from billing WSLCB as a “central service agency” for costs “related to this proposed legislation.”
    • $2,668,000 from enactment until fiscal year (FY) 2025
    • $554,000 in FY 2025-27
    • $80,000 in FY 2027-29
  • Operating costs were mostly claimed by WSLCB and the Washington State Office of the Attorney General (WA OAG), with smaller sums expected for JLARC and WA OAH activities:
    • $8,538,323 from enactment until fiscal year (FY) 2025
    • $3,309,230 in FY 2025-27
    • $2,354,230 in FY 2027-29
  • Representative Kristine Reeves wanted to know if there was a set time period ordinances against cannabis retail needed to have been enacted to be asserted as grounds for challenging equity businesses. Clodfelter highlighted that SB 5080 only said such ordinances had to be "pre-existing" (audio - 1m, video).
    • In a different bill before the committee, Reeves expressed frustration with a municipal cannabis restriction enacted within her district.
  • Ranking Minority Member Kelly Chambers checked if the bill changed distance requirements in statute for cannabis businesses, or the “sensitive areas” they applied to, such as schools. Clodfelter stated those were unchanged by the bill (audio - <1m, video).
  • Co-Chair Shelley Kloba asked how similar the criteria for local objections of equity businesses were to objection laws already in place for alcohol licenses. Clodfelter responded that "it's a little bit specific and different" as cannabis outlet “density” would become a consideration for WSLCB. For alcohol, he added that “the LCB could still issue a license potentially over a local objection,” whereas SB 5080 was “written a little more restrictively that if this objection is made, and the conditions are met, then the license could not be issued at all” (audio - 2m, video).
  • Representative Jim Walsh voiced hesitation over “the conditions and terms of this program restricting the licenses granted,” trying to understand whether equity license resale value would be limited under the bill. “There is a provision in the bill that restricts selling the business for a certain number of years,” explained Clodfelter, except to anyone “that doesn't qualify as a social equity applicant. I believe it would still allow them to sell to someone who could qualify” (audio - 1m, video).

• Seven people explained their support for the bill, arguing that the changes brought “true equity,” and lawmakers posed questions pertaining to the implications for local governments and existing licensees.
  • 112 individuals registered their support of the bill (testifying, not testifying).
  • Bill sponsor and WA SECTF Co-Chair Senator Rebecca Saldaña began with an acknowledgment of the contributions of Representative Melanie Morgan and Chambers to WA SECTF and that group’s legislative report released in December 2022 (audio - 7m, video)
    • Saldaña provided a background of the inequities WA SECTF looked into, similar to her testimony before senators on the purpose of the bill as a partial remedy to unequal enforcement of drug laws against communities of color. She indicated SB 5080 incorporated “just parts of those recommendations” as drafted by WSLCB leaders and amended by the Senate with input from “community voices” central to the process.
    • Emphasizing the changes to the bill reflected her chamber’s concern over “how many retail licenses” to add, Saldaña reported that the legislation featured an increase of 52 retail allotments. Additionally, she said the bill mandated a three year delay “to give time for those 52 licenses, and for us to learn about that process and at that time then LCB can use population, and data…and the market” in advising lawmakers “if any other new licenses” should be added.
    • Saldaña noted repeated calls from the public to include production and processing licenses in the equity program, but she felt “there's perhaps…too many licenses in the producer space. And so, that's why we're only at ten, and even those ten have been pushed out until 2025.” WSLCB would also be authorized to reissue up to 100 cancelled, forfeited, or returned processor licenses as part of the program, she told the committee.
    • Saldaña spoke to the changed milestones in the bill, recognizing that “we've had a delay in when we first heard the legislation” establishing the social equity program in 2020, and that program timelines were being “extended to give it that full ten years” so that equity businesses could get established in a competitive existing market. She responded to Walsh’s question that the program was "trying not to restrict" the licenses, but did want them to stay part of the equity program for the first five years after issuance.
    • Saldaña also acknowledged density and “oversaturation” of cannabis businesses, remarking that in her district “a lot of retail congregated in our unincorporated communities where…they would like different kinds of businesses or mix of businesses and haven't necessarily seen that benefit come back to their community.”
    • The mandated JLARC review was to “make sure that we're reviewing, and making sure that we're giving a real opportunity for folks that have been first of all harmed by the war on drugs,” Saldaña stated, who may have then faced a licensing process many felt “created barriers to opportunity and inclusion of Black Americans, Latino Americans, and Indigenous folks.”
  • Legislators posed several questions on the effects, timeline, and incentives for local governments to site businesses in their communities.
    • Reeves wanted to know about laws denying license renewal over failure to pay child support, indicating the “broader data that I would be interested in understanding is the disproportionality of Black and Brown folks who may be subject to child support and whether or not that data creates an additional barrier as we talk about expanding social equity.” Saldaña made clear that this statute hadn’t been altered by the bill, and promised to see what data she had before she followed up with Reeves. Co-Chair Sharon Wylie concurred that the topic was something she’d wanted to “find out how much we’re doing that with” in other licenses, feeling “we’ve added that in a lot of other licensing areas that don't have anything to do with cannabis” (audio - 2m, video).
    • Walsh wanted to know about the timeline for getting licenses out. Saldaña told him how a window for applications had been opened on March 1st and would conclude March 30th. “The exciting part about these [licenses] is that they are portable,” and would be issued before a person had to lease or buy a retail location, calling it a “big barrier” that would no longer keep someone from starting a cannabis business (audio - 2m, video).
      • In October 2022, the board adopted rules to allow one time portability of an equity license within the county where it was allotted. SB 5080 would expand this allowance so that a business could relocate to any jurisdiction that permitted it.
    • Expressing concern that businesses joining a competitive and established market could fail, Chambers knew the bill would be “trying to stagger” their issuance but asked what “sideboards” besides the timeline were in the program to help equity businesses thrive. Saldaña made reference to 2022 legislation she’d sponsored featuring “low interest loans” for equity licensees along with other cannabis revenue changes which weren’t included in the eventual bill, but asserted the policy could be reconsidered, potentially using community reinvestment money previously approved by legislators. Chambers next wondered if Saldaña would consider allotting a greater share of cannabis revenue to local governments permitting cannabis business operations. “I would be open to that," replied Saldaña, also pointing out that a 2022 ordinance adopted by the Seattle City Council made the city a “more welcoming space for social equity applicants, contingent on us passing this legislation.” She further felt the JLARC review in the 2022 legislation could offer important context potentially supporting Chambers’ idea (audio - 4m, video).
      • In 2023, Chambers sponsored HB 1595 (“Modifying the cannabis excise tax”) which would have altered the tax rate for some products and doubled the revenue going directly to local governments. The bill was heard by the committee on February 6th but not granted an executive session.
      • Pursuant to Saldaña’s 2022 legislation, JLARC staff had begun conducting a review of study questions related to cannabis revenue appropriations as of November 2022.
    • Representative Eric Robertson had heard about oversupply, wondering what would happen if legislators “are flooding the market" with new licenses. He asked, “aren't we setting up for the folks that are already out there to fail, that are struggling, and yet the people that are going to be doing a startup; putting them in a position where they're kind of set up at a disadvantage?” Saldaña answered that she’d mainly heard about oversupply challenges on the wholesale side, making additional retail outlets a potential benefit for struggling growers. “The retail market…is really controlled,” she told the committee, “because even though you can only have three [retail licenses] that people, like the way that they do their partnerships” had become “pretty consolidated and so producers don't have a lot of say in the prices” unless they “have a good relationship with this one retailer.” Saldaña brought up other “legislation out there around [interstate] commerce around possibly in the future being able to have other investors…but for now I think…we have capacity.” She was optimistic that more stores would meet the increased “population capacity…and especially the way that we're structuring it and limiting the producers up front…balances that out” (audio - 3m, video).
      • At the time of publication, retail license holders are allowed to own up to five stores.
  • Black Excellence in Cannabis (BEC) Co-Founder Peter Manning called SB 5080 a bill "ten years in the making" and he believed that the “focus has changed" at WSLCB. He called the legislation “true equity" and didn’t want to see additional restrictions added (audio - 3m, video). Vice President Mike Asai viewed the bill as a way to create jobs and generational wealth for communities underrepresented in the cannabis market. “Washington state has a huge mental health and drug addiction crisis; social equity and cannabis can address some of those concerns,” he argued, concluding that “the Black and Brown community urges this committee to pass this bill as is” (audio - 4m, video)
    • Cannabis legalization as a way to lower opioid use and overdose deaths had been a controversial idea with arguments for and against the practice.
  • Paula Sardinas, President and CEO of FMS Global Strategies, Washington Build Back Black Alliance (WBBA) Founder, and former WA SECTF Co-Chair, asserted that among the “15 states that have social equity programs, none of them have yet resulted in an equitable cannabis industry across the four pillars of equity” which she said were “industry, justice, community, and access - that is what this bill does.” Sardinas mentioned that she was “serving as a mentor to make sure that when we select those folks through this opportunity, they understand marketing, banking, legal, and finance; and they have the best tools available for success” (audio - 3m, video).
    • Reeves was curious how technical assistance was being organized and by whom: WSLCB staff or an agency with more business experience. Sardinas claimed that WSLCB staff had already been providing this type of assistance, but she preferred “public/private partnership” with groups like Tabor 100 or WBBA (audio - 3m, video).
      • The Washington State Department of Commerce (WA Commerce) was mandated to be the lead agency administering the technical assistance grant program along responsibility for technical assistance training and developing a mentor roster.
      • Sardinas did not join the mentors introduced at the March 11th Cannabis Equity Summit but announced plans to host a mentorship meeting on March 18th.
  • Ollie Garrett, WSLCB Board Member, WA SECTF appointee, and Tabor 100 President, testified to the board’s “strong support” of the bill and their history of offering social equity legislation for consideration by lawmakers. She noted her previous testimony to WA House RSG on HB 1790, and stressed SB 5080 would create “economic empowerment…would generate more revenue” in addition to allowing “more flexibility to applicants…and lastly the concerns of local authority…to regulate business locations including outlet density” (audio - 4m, video).
    • Chambers asked about the amount of fees waived under the program, though Garrett was unsure.
      • Annual cannabis licensing fees in statute were $1,381 at time of publication (audio - <1m, video).
    • Then, Chambers was curious if the definition of “people harmed [in the] War on Drugs" included a person who was shot or killed, which Garrett answered wasn’t specified in the definition (audio - 1m, video).
    • Walsh sought to avoid a system with “more planning and less execution." Garrett talked about the time that had gone into setting up the program and what the agency had been doing to help applicants prepare for the process and be successful. She believed that the WSLCB approach was “thoroughly vetted" and they were doing everything they could to help applicants “understand what it takes to run a business, and to sustain as a business owner in the industry” (audio - 3m, video).
  • Burl Bryson, The Cannabis Alliance Executive Director, backed the bill, saying that it was "beyond time" to increase industry equity and that "more still needs to be done" beyond SB 5080 (audio - 2m, video).
  • Paul Jewell, Washington State Association of Counties (WSAC) Policy Director, supported the bill after revisions in the Senate would require WSLCB to comply with county legislature objections to new licenses in their boundaries. He advised giving local governments a longer time frame to object, allowing a designee of a county government to object—rather than requiring a legislative body to formally issue the document—and expanding the objection process to all production and processing licenses going forward. “Other than that we're pretty satisfied with the bill; we respectfully request that you pass it,” Jewell added (audio - 2m, video).
    • Reeves followed up to confirm that individual county officials couldn’t file an objection to an equity businesses, and that the bill would only apply to objections when a “density requirement [was] based on prior density ordinances, not density ordinances that would be enacted after the enactment of this legislation.” Jewell’s understanding was that objections had to be formally filed by “the city, the town or the county legislative body,” not individual representatives - though he couldn’t speak for municipal processes. He knew it would take a county council action to lodge objections based on store density put in place after the bill became law. He felt county efforts to pass new ordinances would apply to all cannabis retail stores in a jurisdiction, not just equity businesses, and that adding such an ordinance represented "a major undertaking" with many public opportunities for input. “So any ordinance would apply more broadly as well, and it could be enacted at any point as long as it was prior to when the actual license application was filed and notice was provided,” Jewell surmised (audio - 3m, video).
  • Citizen Arthur West described himself as "no fan of 502" but supported the bill since, “for whatever reason, the licensing process was not friendly to those that were not…core members of the corporate world.” He felt that "systemic bias in our country" based on race had left people “locked out of the American dream,” including in the cannabis sector. He also encouraged having WSLCB submit “reports to the legislature on the progress because…this has been going on for a number of years, and they haven't been issuing these licenses and I’d like to see this work” (audio - 3m, video).

• Among dozens of people signed in against the bill, only one signed up to testify and then wasn’t available; two people gave positions neither for nor against the bill, urging expanded restrictions and the ability of local officials to object to, and stop, equity business licensure.
  • 70 individuals registered their opposition to the bill, and four individuals registered as ‘other’ (testifying, not testifying).
  • Citizen John Worthington signed in to speak against the bill, but wasn’t present during the hearing.
  • Adán Espino, Craft Cannabis Coalition (CCC) Executive Director, said there were “more pieces our members still have concerns with.” He wanted legislators to add clearer maximums for retail density, and that only the licenses already in the program be issued “because until cannabis is rescheduled or legalized in federal law the existing Washington market for cannabis literally cannot grow beyond its boundaries” in what he termed a “hyper-contained” state market (audio - 3m, video).
  • Lindsey Hueer, Association of Washington Cities (AWC) Government Relations Advocate, mentioned that the organization "fully supports equity," which she insisted “fundamentally implies one size does not fit all." She gave her support to provisions in the bill requiring WSLCB not issue equity licenses following local government objections (audio - 1m, video)
    • Reeves sought clarification about what density qualified as objectionable, concerned “that nothing in this legislation prevents a city, county, or town from enacting” density requirements after the bill became law, trying to understand “where is the protection for the licensee in communities where maybe the density objection has never existed prior to the enactment of this legislation?” Hueer stated that her reading of SB 5080 was that it only applied to municipalities with a “preexisting ordinance” at time of issuance of the notice of potential licensure. She hypothesized that local authorities would voice concerns “because we already have an existing density in this area. So we're going to limit the density in that particular area” in order to ”prevent more,” without prohibiting businesses throughout their jurisdiction entirely, “because the ordinances ha[d] to come before this licenses.” Reeves called attention to language that “nothing in this chapter limits” cities or counties from adding cannabis density ordinances, something that "seems inconsistent to me" and she wanted to work with AWC officials to “get some consistency to ensure that the behavior…doesn't end up being the unintended consequences of confusing language” (audio - 4m, video).

• Washington State Liquor and Cannabis Board leaders—though not signed up to testify—were invited to join the hearing to address committee members’ questions around costs, restrictions, eligibility, "speed to implementation,” and the process for reviewing applications and awarding licenses.
  • Director of Legislative Relations Marc Webster addressed the amount in the licensing fee being waived, and clarified WA Commerce role in administering the technical assistance and mentorship aspects of the process (audio - 1m, video).
  • Director of Policy and External Affairs Justin Nordhorn responded to Reeves’ earlier question on child support, saying he didn’t “recall any license cancellations or suspensions for child support in the cannabis industry yet” (audio - 1m, video).
  • Chambers inquired about how disproportionately impacted area mapping had been conducted. Nordhorn explained that changes to mapping those areas in SB 5080 were “modeled after the social equity program [mapping] in the state of Colorado.” Chambers next asked about people harmed by the drug war in ways that weren’t arrests or convictions. He stated the rules didn’t call out “victims directly” but that WSLCB staff had heard concerns their criteria “didn't go broad enough…this particular piece of legislation opens that up a bit more so there would be additional qualifiers for folks” (audio - 2m, video).
  • Morgan asked for clarification if someone with a family member who was arrested or convicted of a drug offense was eligible. “So I recall that in…the task force meetings and, and recommendations,” answered Nordhorn, though that definition wasn’t adopted in the equity program rules (audio - 1m, video).
  • Vice Chair Chris Stearns asked about eligibility of people who were charged but not convicted. Nordhorn noted several factors about those types of police interactions, including arrests, and believed “issues around the arrest are very challenging to quantify. So…it was just the convictions that the bill was trying to encompass” (audio - 1m, video)
  • Still concerned with the "speed to implementation," Walsh noted that having WA Commerce officials lead on technical assistance and mentorship aspects of the program had the potential to create "multi-agency" slowdowns in the system. Webster shared the perspective that the department’s business expertise was valuable to have during the first round of equity licensing. A "second round can go much faster," he predicted, and Nordhorn concurred (audio - 2m, video).  
  • Reeves noted the language in SB 5080 didn’t require the third-party contractor scoring and prioritizing applications to have experience in “diversity, equity, inclusion” nor a background of work “in public administration, or the development of programs specific to cannabis.” Nordhorn identified Ponder Diversity Group as the selected vendor that would be overseeing the vetting of equity applications, and asserted they had an "an appropriate background" that was "objective and neutral." Webster highlighted how the qualities mentioned by Reeves had been the criteria they’d used when selecting the law firm Quintairos, Prieto, Wood & Boyer P.A., whose staff subsequently spun off the Ponder Diversity Group (audio - 4m, video).
    • Reeves asked why, if the vendor had already been hired, was “language included in legislation that you are asking us to consider, and asking us to pass, that you have already executed and implemented.” Nordhorn felt that the “evolving process” around the equity program meant the changes in SB 5080 were meant to “improve upon” the system they’d already started. Webster framed it as “round two…some of the stuff that's in there…is related to the first round of social equity” legislation already in place.
  • Chambers wanted clarity on a task force recommendation to "remove non-violent" from the description of qualifying cannabis convictions. Nordhorn replied that WSLCB had modified criminal history rules in September 2021, but some non-violent offenses including "money laundering" remained disqualifying convictions for cannabis license ownership (audio - 2m, video)
  • Representative Greg Cheney asked whether someone who had a possession conviction vacated under the State v. Blake decision would no longer have that conviction count against their application for a cannabis license. Nordhorn affirmed that understanding, and further noted that someone who had been convicted of a “class C felony in our previous rules would disqualify you. Now, it doesn't…when people go and they do their time…we don't feel like it's LCB’s responsibility or obligation to continue to penalize” the person by barring them from a business license (audio - 1m, video).