WA House RSG - Committee Meeting
(March 21, 2023)

Here are some observations from the Tuesday March 21st Washington State House Regulated Substances and Gaming Committee (WA House RSG) Committee Meeting.

My top 3 takeaways:

• The staff briefing and sponsor introduction for SB 5546, “Establishing a Washington state cannabis commission,” occurred a day earlier and the hearing was left open.
  • The legislation was amended and passed by the Washington State Senate (WA Senate) on March 8th. The WA House RSG hearing for the measure was opened at a meeting the day before on March 20th, with Committee Counsel Peter Clodfelter sharing a staff briefing from the bill report (audio - 3m, video):
    • Provides that, upon receipt of a petition containing the signatures of five active cannabis producers or active cannabis producer/processors, the Director of the Washington State Department of Agriculture (WSDA) must conduct a referendum of active cannabis producers and active cannabis producer/processors within 60 days of receipt, and if the requisite assent has been given, establishes the Washington State Cannabis Commission (Commission).
    • 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.
    • Sets an initial assessment rate to fund the Commission as a percentage of sales revenue conducted by cannabis producers and producer/processors, and requires assessment modifications to be approved by referendum.
  • Co-Chair Shelley Kloba had two clarifying questions around voting majorities (audio - 1m, video) and selection of commission members (audio - <1m, video).
  • Sponsoring Senator Sharon Shewmake gave an endorsement of the bill and the need for a commission similar to her earlier policy hearing and floor testimony (audio - 5m, video).
  • With other items on their agenda running long, public testimony on HB 5546 was postponed until March 21st.

• Public testimony in favor came from multiple cannabis trade group leaders who explained the benefits of producers organizing research and attested that the concept had been refined over several years.
  • 44 individuals registered their support of the bill (testifying, not testifying).
  • Burl Bryson, The Cannabis Alliance Executive Director (audio - 2m, video)
    • Acknowledging his background as “CEO of one of the largest cannabis companies in the state,” Bryson expected “if I was testifying on behalf of that company right now, I would probably be testifying against this bill” since “most well-funded and and largest companies are against this bill because it's a very egalitarian bill.” As “many agricultural commissions in the state provide knowledge and best practices to the lowest individual members,” he wanted “to allow the farmers to vote on whether or not they want an agricultural commission.”
    • Representative Jim Walsh told Bryson some cannabis producers in his district who “at least consider themselves smaller operators…tell me they don't like the proposition of the commission because they think it would cut to favor larger operators and not them. So how does that square with your impressions of what the commission would do?” Bryson attributed this to “misinformation about this bill…and what it will do,” believing that “with other commissions, there's been sort of a resistance in advance of a commission and then ultimately an embracing of the information that comes out.” He mentioned potential research topics a commission could look into to make “information more available to everybody in the industry in the state, versus just a few operators that have the dollars to be able to hire” researchers. Bryson insisted SB 5546 was “very much about small producers and small business and it's about giving those farms an opportunity to vote on whether they want it or not” (audio - 2m, video). 
  • Shawn DeNae Wagenseller, Washington Bud Company Co-Owner, Cannabis Alliance and Washington Sun and Craft Growers Association (WSCA) Board Member (audio - 2m, video)
    • Wagenseller commented that “the Senate raised the bar” on the bill after the authors had the commission “set up to pass just like the beer and wine commission did…but we compromised, and so we borrowed language from the beer and wine commission, what they use to raise their assessments.” With continued pushback from opponents, “we raised the bar again to 40%,” she noted, holding cannabis producers “to a higher standard, but we're willing to go for the vote.” She felt that it was more accurate to see the bill not as a “vote to establish a cannabis commission, but it's to establish a vote so that we may…establish a cannabis commission.”
  • Peter Manning, Black Excellence in Cannabis (BEC) Co-Founder (audio - <1m, video)
    • Manning testified that “we support this commission bill after speaking with the Cannabis Alliance. We understand the need for this; we do not think this is going to interfere with social equity.”
  • Lara Kaminsky, Cannabis Alliance Government Affairs Liaison (audio - 1m, video)
    • “I am one of those that have been working to help the industry form a commission for seven years,” remarked Kaminsky, and had “heard the gamut of opposition from the same individuals as to why we shouldn't form a commission. We have taken all of those concerns, in a collaborative effort, into account with this most recent bill.” She said “the assessment is actually quite affordable…If you sell one million dollars of product in a year, you're paying a hundred dollars a month to the commission” to help “fund a lot of research and the director of [WSDA] has oversight of all the activity of the research” and commission operations. “If you think [the legislation is] good, give the farmers the right to vote,” Kaminsky concluded.

• Four people testifying against the move feared “double taxation” would burden small producers who couldn’t opt-out of commission membership and alleged backers hadn’t done sufficient outreach.
  • 20 individuals registered their opposition to the bill and one individual signed in as ‘other’ (testifying, not testifying).
  • Ezra Eickmeyer, Producers Northwest Executive Director (audio - 1m, video)
    • Asserting a commission wasn’t needed “right now,” Eickmeyer said the cost placed on producers to fund a commission would amount to "double taxation." He remarked how a business in “our membership group would have to pay $50,000 a year for this commission,” and that because only 40% of producers and producer/processors had to participate in the vote to establish the commission “that means 21% of the industry could trigger something that the whole of us would have to pay for.”
    • Ranking Minority Member Kelly Chambers asked "what would it take to get you to a yes." She further wondered how lawmakers might assess trade group membership, “how big their business is, how much canopy…obviously you're not asking for something wrong to want, to share best practices and grow better crops, but I understand that you all want this to be fair” in terms of costs and benefits. Eickmeyer had seen “some of the larger companies with the most revenues are struggling…and currently going through layoffs.” He continued, saying his “business group is not doing well, we're in layoff mode right now…and this bill would cost us.” Overall, he said it was too soon to establish a commission where the “only potential benefit is some research for the next couple of years.” Eickmeyer pushed for out-of-state ownership and interstate commerce legislation while advocating for increasing the participation threshold to establish a commission, insisting SB 5546 “needs a lot more work and isn't ready for prime time” (audio - 2m, video).
  • Bethany Rondeaux, Falcanna Owner (audio - 2m, video)
    • Viewing the main benefit of a commission as marketing cannabis—which the organization would be prohibited from undertaking—Rondeaux argued the “last thing growers need right now is another unnecessary expense with the social equity bill most likely passing.” Assuming a zero sum dynamic where “current retail stores will lose customers to the new retail stores,” she expected this would “put additional pressure on producer/processors to deliver to more stores to make the same amount of income.” Rondeaux summed up that “any pressure that the cannabis retail stores feel gets passed down to the producer/processor. I believe the smart thing to do is wait and see what the impact the new social equity retail licenses will have on the market before introducing more expenses like the commission bill.”
    • At time of publication, the social equity program was accepting applications for additional retail licenses including the first opportunity in Cowlitz County added to the allotment map.
      • Later on the day of publication, WSLCB staff announced their intention to extend the application window until April 27th.
  • Vicki Christophersen, Washington CannaBusiness Association (WACA) Executive Director and Lobbyist  (audio - 1m, video)
    • Confident that WACA and other cannabis trade associations “combined represent less than ten percent of the cannabis industry,” Christophersen commented “it's our members opinion that the majority of the industry that is going to be affected by a tax needs to be represented in a conversation.” She argued SB 5546 had “been created by a small group” that “has written a bill year after year, and every year when it has failed they have refused to sit down with the rest of the industry and actually stakeholder a proposal…that is really thought through by the entire industry.”
      • In a Washington State Liquor and Cannabis Board (WSLCB) licensing update on March 8th, staff identified 1,772 issued cannabis licenses.
      • On February 9th, the first hearing on SB 5546 was combined with a hearing on an issue WACA members had backed for years, SB 5377, “Concerning cannabis license ownership.” With people testifying on both topics, it showed out-of-state ownership was an issue that remained divisive in the industry. That bill wasn’t advanced by legislators and was placed in the Washington State Senate Rules Committee (WA Senate RULE) x-file.
    • Chambers asked about Christophersen’s estimate that she and other cannabis trade association lobbyists spoke for “less than ten percent” of the sector. Christophersen responded that “if you look at actual licenses that are represented by the trade associations, it is less than 10%. There are a lot of people that are interested parties that join the associations” but she felt “most people who are licensed in this industry have their head down and they're trying to survive. So when it comes to something like this, we think that it needs to have more representation” (audio - 1m, video).
  • Keegan Skeate (audio - 2m, video)
    • Skeate introduced himself to lawmakers as “the whistleblower at Praxis Laboratory where more than 1,200 falsified quality control laboratory tests were issued, representing potentially 6,000 pounds of cannabis that was sold in Washington state for what I estimate to be a market value of up to 20 to 30 million dollars.” Holding “two masters in economics,” he was against SB 5546 over concerns “two provisions of the bill create a cannabis cartel.”
    • Skeate found that provisions in the bill calling for “uniform grading and proper preparation of cannabis products for market” along with a requirement to “protect the interest of consumers and the state by advising on the overall production of cannabis” amounted to a “mechanism to fix prices. This may lead to a violation of the Sherman Act which prohibits any agreement between competitors to fix prices, bids, or engage in any other anti-competitive activity.” He stressed that since a “cartel occurs where two or more firms enter into an agreement to restrict the supply and/or fix the price of a good in a particular industry,” the commission’s mandate was “literally a cannabis cartel.” Skeate remarked “evidence suggests that there's ongoing involvement between” cartels and brought up cannabis plant seizures after his testimony time ended.
      • Agricultural associations have been authorized under the federal Capper–Volstead Act, which created some exemptions from antitrust laws for the agricultural sector. However, the status of cannabis as a schedule I prohibited substance may impact the application or validity of other federal laws. Find out more from the U.S. Department of Agriculture (USDA) Rural Business and Cooperative Development Service documents Understanding Capper-Volstead and Antitrust Status of Farmer Cooperatives: The Story of the CapperVolstead Act.
      • Prior analysis and statements from federal officials on agriculture and antitrust topics included:
        • Agricultural Cooperatives And The Antitrust Laws (1965)
        • Antitrust Law: An Application of the Sherman Act to the Professions (1973)
        • Curdling the Competition: An Economic and Legal Analysis of the Antitrust Exemption for Agriculture (1986)
        • Antitrust Enforcement And Agriculture (2001)
  • WSDA Policy Advisor to the Director and Legislative Liaison Kelly McLain signed in as ‘other,’ but was unavailable when called upon. She’d previously testified on the bill on February 9th.
  • SB 5546 had been scheduled for executive session action on Thursday March 23rd, but no action was taken (audio < 1m, video). At publication time, the bill had not been rescheduled for either of the two remaining committee meetings ahead of the Wednesday March 29th opposite house policy committee cutoff.