WSLCB - Board Caucus
(March 28, 2023)

Here are some observations from the Tuesday March 28th Washington State Liquor and Cannabis Board (WSLCB) Board Caucus.

My top 4 takeaways:

• Owing to an “unforeseen delay" at the Washington Secretary of State (WA SOS), staff advised the board to extend the application window for social equity licenses until April 27th via emergency rulemaking.
  • On March 24th, agency leaders initially announced their intention to extend the application window. This included an update to the WSLCB social equity landing page that stated WA SOS was “experiencing a high volume of applications,” and for any applicant “waiting for their UBI [Unified Business Identifier], they can ask for a status update using the email corps@sos.wa.gov and please ensure to add ‘LCB deadline’ in the subject line. They can also pay an additional fee at the time of application with the Secretary of State to expedite their request.”
  • Hoffman reported “as part of the social equity application process, some applicants seek to form a new business entity by applying for certification as a limited liability company [LLC] or similar business structure” through WA SOS. She described how the application window—which had been opened for a first round of applications on March 1st—was being impacted by WA SOS staff delays in processing business registrations. For this reason, Hoffman said agency officials recommended implementing an "immediate, temporary extension" until April 27th at 5:00pm as the best way to guarantee “equitable opportunity" to sign up for one of the available license allotments (audio - 3m, video).
    • Hoffman noted the revised application window of 58 days might prompt “a question about why aren't we doing 60 days.” This date would align with “operational practices” of the Washington State Business Licensing Services (BLS) application system which “required to close the application window on a Thursday.” She included that Policy and Rules Coordinator Daniel Jacobs would present the emergency rulemaking at the Wednesday March 29th board meeting for formal board approval of the extension.
    • Learn more about the program from WSLCB training and educational materials.
  • Director of Licensing Becky Smith elaborated that they’d contacted WA SOS staff after learning about the “backlog” and WSLCB officials had collaborated with them on a solution. She specified that the intention of her team was to “allow for those folks that were in the middle of…changing into an LLC to, to be able to make that happen.” Smith wanted to be certain "that everyone who wants to participate in this program" had an opportunity to form a company, or apply as an individual (audio - 1m, video).
  • Board Member Ollie Garrett checked if social equity mentors had been notified. Smith responded that mentors were organized through the Washington State Department of Commerce (WA Commerce) not WSLCB, but they notified department staff about the extension, “and then they're the ones that communicate directly with their mentors” (audio - 1m, video).
    • More mentor information can be found via an online social equity portal.
  • Board Member Jim Vollendroff sought confirmation that scoring wouldn’t be impacted based on when the application was received. Smith affirmed that view, adding that applicants received an initial BLS notification when their application was successfully submitted. In May, a follow up letter from Ponder Diversity Group would go out with details on submitting additional documentation, she stipulated (audio - 1m, video).
  • Board Chair David Postman mentioned that he’d wondered “why couldn't we just figure out who” had a WA SOS business entity application in at the time they applied, but found out from Smith that “really, we can't, and you can't reopen the application period” nor “extend the deadline for those who have paperwork pending at the Secretary of State's office. It just doesn't work that way…we have to say ‘it's open.’” Smith agreed, commenting that with WSLCB, WA SOS, and BLS all involved, "there really is not a better solution to this than extending” the deadline in order to clear “out all those queues." She continued, mentioning that the extension wasn’t to “help people who didn't get their application in on time. It's to help people whose application was stuck in a traffic jam, and we don't want to punish those people” (audio - 2m, video).
  • Director Rick Garza later lauded the cooperation between the agencies: “When we reached out to Steve Hobbs, the Secretary of State, his deputy reached out to me immediately to get a meeting together to work through the issue that they saw that we were having, and also brought staff in on the weekend to begin to process those applications” (audio - 1m, video).

• Director of Legislative Relations Marc Webster talked about agency request legislation and other cannabis bills they were monitoring.
  • Operating Budgets (audio - 1m, video - TVW)
    • Webster outlined WSLCB priorities in HB 1140 and SB 5187, “Making 2023-2025 fiscal biennium operating appropriations,” remarking that the systems modernization project (SMP) had been funded beyond the level proposed in December 2022 by Governor Jay Inslee in both budget bills, so “there's not a lot of real concern from that early read.” He acknowledged “some concerns that we've heard from the Department of Agriculture [WSDA] regarding the funding for their testing lab, but we're going to need to to learn more about that.”
      • At time of publication, HB 1140 had a public hearing hosted by the Washington State House Appropriations Committee (WA House APP) on March 27th and was scheduled for executive session on March 29th. SB 5187 was recommended for passage by the Washington State Senate Ways and Means Committee (WA Senate WM) on March 27th and on March 28th the bill was placed on the second reading calendar.
      • The Washington State Office of the Chief Information Officer (OCIO) maintained a project dashboard for SMP providing documentation dating back to the project origin in September 2015. WSLCB leaders commented on the long running project in December.
  • SB 5080 - "Expanding and improving the social equity in cannabis program" (audio - <1m, video)
    • The legislation was scheduled for a public hearing by WA House APP on Thursday March 30th, and Webster noted it was one of “15 bills on the hearing calendar that day and another four” receiving executive sessions, meaning “we do anticipate having very little time to speak to it.”
  • SB 5367 - “Concerning the regulation of products containing THC” (audio - 1m, video)
    • Webster mentioned the bill was set for a public hearing by WA House APP on Friday March 31st, as one of “12 bills, but I'm confident we can try to set it up for success…kind of like we did in the Senate…and I think our message is really a simple one: The bills have been worked; we don't need changes now…just pass them through.”
  • SB 5405 - “Modifying the liquor and cannabis board's subpoena authority” (audio - 1m, video)
    • Commenting the bill was recommended by the Washington State House Regulated Substances and Gaming Committee (WA House RSG) on March 27th, “albeit with a very large amendment, something of a joint proposal from both parties,” Webster said it made “more explicit process requirements around notification for those who are served a subpoena, training for enforcement staff, and also tasks the LCB with ensuring it's used equitably and doesn't result in disproportionate impact.” He talked about how staff would “need to dive into that,” and watch to see “whether that's referred to” the Washington State House Rules Committee, as he expected the bill “probably won't be going to appropriations.”
  • Gubernatorial Appointments (audio - <1m, video)
    • All board members were given appointment hearings on March 9th, and recommended for approval by the Washington State Senate Labor and Commerce Committee (WA Senate LC) on March 20th.
    • Webster told board members that Postman’s appointment had been moved to the confirmation calendar by Washington State Senate Rules Committee (WA Senate RULE) on March 24th, and he expected Garrett and Vollendroffs’ appointments could be added soon.
  • SB 5546 - “Establishing a Washington state cannabis commission” (audio - <1m, video)
    • Webster said a “reworked version” of the bill was passed by WA House RSG “on a party line vote” on March 27th.
    • When Postman asked what had been changed, Webster highlighted how lawmakers had considered “increasing…the percentage of the affected producer/processors to vote” to set up the commission. Additionally, "there's a lot more focus on social equity," he said, relaying that for social equity producers section 15(5) was “exempting them from having to pay [assessments] early on” (audio - 1m, video).
  • SB 5363 - “Concerning cannabis retailer advertising” (audio - <1m, video)
    • Heard by WA House RSG on March 21st, Webster voiced confidence the bill would get a recommendation for passage, which it did following adoption of an amendment from Representative Kristine Reeves.

• Policy and Rules Coordinators Daniel Jacobs brought up a petition on medical cannabis endorsed retailers that elicited many follow up questions from board members.
  • On February 28th, Hoffman relayed her intention to change the petition review process in favor of providing multiple options to board members instead of a singular recommendation for action.
  • During caucus, Hoffman reiterated that “we're moving into a different model that provides the board with up to three options about how they can respond to the petition,” including accepting or rejecting it, or rejecting but also having staff “think about an alternative” to rule changes that might achieve a similar outcome. She encouraged ”that you ask as many questions as you'd like today; we're really looking forward to dialogue on that” and indicated that Jacobs and Policy and Rules Coordinator Cassidy West would “co-present on their petitions to support each other if needed, and help to answer questions because they worked very closely together on these two petitions” (audio - 2m, video).
  • Jacobs addressed a petition regarding surrender or revocation of a WSLCB retail medical cannabis endorsement (audio - 3m, video).
    • The issue of how many endorsed retailers were in compliance was first raised publicly by agency leaders in November 2022, and Hoffman mentioned a petition calling for a “discontinuation process to allow those businesses to either surrender their endorsement, or for the agency to ask someone to surrender their endorsement if they're not using it” on February 28th.
      • For medical cannabis, the Washington State Department of Health (DOH) had responsibility for:
        • Administration of the medical cannabis authorization database.
        • Licensing and regulation of the medical cannabis consultant certificate.
        • Standards for products that may be beneficial for medical use.
      • WSLCB rules outlined how retailers can maintain a “medical cannabis endorsement in good standing” in WAC 314-55-080(3), with subsections requiring adherence to DOH rules “regarding retail sales of medical cannabis,” as well as:
        • “Have a consultant on staff”
        • “Prohibit the medical use of cannabis by anyone at the retail outlet at all times”
        • “Maintain at all times, a representative assortment of cannabis products necessary to meet the needs of qualified patients”
        • “Not market cannabis concentrates, useable cannabis, or cannabis-infused products in a way that make them especially attractive to minors”
        • “Demonstrate the ability to enter qualifying patients and designated providers in the medical cannabis authorization database”
        • “Issue recognition cards and agree to enter qualifying patients and designated providers into the database”
        • “Keep records to document the validity of tax exempt sales”
        • “Train employees” on procedures around patient authorizations, recognition cards, and products.
    • Jacobs stated that staff “received a petition for rulemaking from John Kingsbury on January 31st, 2023, regarding medical cannabis endorsements for retail establishments.” WAC 314-55-080(6) specified that “Failure to comply with” rules pertaining to an endorsement “may result in suspension or revocation of the medical cannabis endorsement.” Jacobs described how Kingsbury had been bringing up the issue of retailers who lacked compliant products, certified consultants on staff, or couldn’t enter patient information in the database.
    • Following outreach to endorsed businesses from WSLCB officials, he added that “over 50 retailers since October have voluntarily surrendered their endorsement while the agency has a list of what is now approximately 235 medical cannabis endorsement holders.” Jacobs said there remained “lag time between when a retailer no longer qualifies” and when WSLCB was “notified of such non-compliance.” He advised the board about the three options he would present at the Wednesday March 29th board meeting:
      • “You can decline the petition and leave the regulation as is, in part because the specific request of the petitioner is to amend the regulation to create specific authority to terminate the endorsement for failure to comply with the requirements, and that authority is already in the regulation.”
      • “You can decline the petition leaving the rule as is, but send out some sort of public-facing message to licensees…reminding them of the requirements for holding a medical cannabis endorsement, and providing additional information on how to surrender or renew the endorsement as well as…if they have left compliance how to go about returning to compliance.”
      • “Accept the petition in which case the…rulemaking process, as is tradition, will proceed and I think you are all familiar with what that would mean because several petitions for rulemaking have recently been accepted.”
  • Postman and Vollendroff were curious what Jacobs perceived as their alternative remedy if they denied the petition. He replied that denial could be coupled with more staff review and rulemaking at a later date “if the board wanted more flexibility to look at the rule and didn't want to feel like the scope was so narrow” (audio - 4m, video).
    • Hoffman noted the Cloud Storage Rulemaking Project began with a petition focused on cannabis licensees, but “we want[ed] to take a look and see if this might apply to…the other areas that we regulate so there we expanded the petition. There are some petition requests that we get that are very specific where” a petitioner wants “to change this one rule with this language and I think in that instance, it really does restrict us on…what we can do.”
    • Jacobs explained that Kingsbury had “actually followed up with me since then and submitted some additional information and indicated that he…wouldn't be opposed to amending…the scope of the petition.”
  • Postman believed if the authority was already there then rulemaking might be unnecessary, “but if there is a sense of the board that we want to do more on the medical side… any options that people could present to us tomorrow of what that could look like…would be helpful” (audio - 2m, video).
    • Hoffman speculated it might be possible to contact endorsement holders by letter, “just checking in and with a friendly reminder” about what “you need to have…in order to keep your endorsement current, and if you're not doing that…or if you don't want to keep doing that, let's talk about surrendering your endorsement to the agency.”
    • Postman recognized policy staff “sent a letter last fall…and so we've sort of done that…and I know Licensing had some ideas of what they would like to see, and I don't know whether that requires rulemaking or not…but that would be my question is…are there things that would be helpful to Licensing in this effort.”
  • Garrett remarked that it seemed the “petition itself [wa]s…asking for something we already do” as they had been contacting retailers to “reinforce what's necessary to be in compliance making sure [they’re] in compliance and making sure [they] want to stay in compliance.” She suggested this engagement was something “we can probably periodically…keep doing because peoples’ circumstances” change. Garrett guessed a business might be in “compliance today, but not six months from now, or decide, ‘Hey, I don't want to do this any longer,’ but never notify” WSLCB (audio - 1m, video).
  • Vollendroff wondered what the penalties were for endorsed stores not being in compliance. Hoffman told him "there aren't any" as the endorsement system was voluntary. “Except for revocation,” added Postman (audio - 1m, video).
  • Garrett felt “we are listing those [stores] somewhere for medical patients to see that they have endorsements” only to find out at the store they “just made a trip for nothing. They don't have this here.” She asked, “what is the benefit of those that have the endorsement?” Postman argued they added obligations to a retail operation, but “the endorsement is there because we want to serve medical patients. So is that happening? Are they able to get their product elsewhere maybe, and it's just not a big deal to them? Maybe they're going to the illicit market; that would be a big deal to us.” Beyond confirming whether WSLCB had an enforcement process regarding endorsements, he wanted a better understanding of “why are we doing it, and is it achieving that goal?” Postman vented that it had gotten “hard to know what's really going on out there. People don't feel comfortable telling us, we know there's some reluctance for people to sign up on the [DOH] database. They don't want to be in” a “state record…it's more complicated than just this question of who has authority to revoke” endorsements (audio - 3m, video).
    • A 2021 study of Sales and Use Tax Exemptions for Marijuana Retailers with a Medical Endorsement by the Washington State Joint Legislative Audit and Review Committee (JLARC) found in fiscal year (FY) 2020 that of $1.57 million in cannabis sales reported under the tax exemption “less than 1% of beneficiary savings for this preference were for purchases identified as DOH compliant product,” saving patients “approximately $7,000." This may indicate that retailers advertising medical endorsements can expect more sales of non-compliant products to patients who get a sales tax exemption.
  • Garrett was curious whether staff were hearing complaints about endorsed stores, asserting the board had previously heard"a lot" that patients couldn't find compliant products. Vollendroff agreed that he’d heard that “but I don't think we've seen people coming to board meetings recently.” Hoffman said they’d raised the issue during deliberative dialogues on cannabis product-testing rules and that Kingsbury had participated and alleged difficulties in finding compliant products, but others “said they had easy access to those products." Rules didn’t mandate “that retailers have to have so many products on the shelves,” she mentioned, but “how do we make sure that there's enough out there?” (audio - 3m, video)
    • Find out more from an October 2021 DOH update on the program, tax preferences, and patient trends.
  • Vollendroff and Garrett agreed they wanted to hear a more specific staff update on how stores demonstrated and maintained an endorsement. Jacobs promised to look more closely at the existing rules around endorsements. Hoffman referred to DOH requirements on medical cannabis retailers, specifying the need to include certified consultants on staff. If an endorsed store lost that consultant, Postman speculated they might not recognize that they need to re-staff the position or surrender their endorsement. What priority the board assigned to endorsement compliance would inform what action, and how much staff power, the board committed to the matter, he reasoned, arguing the “LCB strategic plan” included a goal of ensuring “that consumers ha[d] medicinal product” along with “good information” (audio - 5m, video).
  • Garza felt that since the endorsement system had been implemented, there had been "continual complaints from the beginning to date" that products previously available to patients were not carried in adult use stores. He credited Director of Policy and External Affairs Justin Nordhorn for being engaged on the topic for years, but thought “there's a much broader issue there…and that's probably why the petitioner continues to try to address this issue that's focused toward the endorsement, and the medical cannabis consultants the DOH has to approve.” Garza advised Vollendroff to “sit with” staff and learn about “what have we been doing the last few years around this and…that could get you as close to up speed.” However, Garza made clear he knew of no immediate solution to the lack of medically compliant cannabis items at endorsed stores, but acknowledged staff “had discussions of late about…creating, like, medical clinics for cannabis that that are separated from the commercial aspect of it, and a couple of other states have done it” even though “that will take time to build that and what that should look like” (audio - 2m, video).
    • Garza was among WSLCB leaders who advocated for the merging of the medical and adult use cannabis markets in 2015. Find out more about the background of medical cannabis implementation in Washington state by DOH and WSLCB staff, as well as the legislature.
  • Postman called for a more in-depth work session on the subject, feeling it wasn’t sufficient to just deny Kingsbury’s petition “and say ‘we’ll send a letter’ because…we've done that, or ‘we'll do better,’ because we've said that” (audio - 1m, video).

• Policy and Rules Coordinator Cassidy West offered remarks on another petition regarding payment terms between cannabis licensees that led to some discussion about the state tied house law.
  • She called attention to the petition staff received on February 6th related to payment terms for cannabis licensees in WAC 314-55-115. “Under the current rules, payment is required prior to the time of delivery and only cash or another form of payment that the board recognizes…which includes checks, may be used as payment for cannabis transactions between licensees,” she explained. “Some other methods of payment that the board recognizes as cash for purposes of the rule, like credit/debit charges, electronic funds transfers, and transactions using a money transmitter payment, may be initiated up to one day following the delivery,” she continued. Moreover, West stated “any transaction reported as having not sufficient funds is considered to be an extension of credit” which was “generally prohibited out of concerns for undue influence” (audio - 4m, video).
    • When presenting “policy options for the board to consider in response to this petition” to “allow checks for purchasing cannabis being mailed and postmarked within [a] three day window” at the board meeting, West planned to highlight how:
      • “If the board were to move forward with denying the petition then the issue cited by [Washington Sun and Craft Growers Association (WSCA) Board Member and Raven Co-Owner] Micah Sherman in his petition would not be mitigated.”
      • “If the board chose to accept the petition…a giant risk here is that if the board approves the petition then…no rule change could occur, or change could occur that may not necessarily address the stakeholder feedback.”
      • “A benefit of accepting the rule petition and moving forward…would be that cannabis businesses have additional flexibility to conduct business in a manner that is consistent with common and usual business practices, which supports the agency’s overarching…social equity goal.”
  • Postman asked how checks were used in the alcohol industry. Hoffman confirmed payment could be mailed five days after a delivery between businesses. “If we're not concerned that this sort of short-term debt, if you will, is problematic on the alcohol side,” Postman wondered, “why is it on the cannabis side?” (audio - 2m, video)
  • Postman also inquired about the financial interest for licensees if the practice was allowed. He hypothesized about a processor waiting on payment from a retailer: “for those three days the processor who sold me that stuff has a financial interest in my operation because…I have a debt to them.” He commented this was “why we don’t let people run a tab” with a retailer, but had a lingering question over “what are we getting at,” and was it mainly a “financial connection between a processor and a retail person. Is waiting for a check in the mail a financial interest?...Maybe it is, legally” (audio - 2m, video).
  • Hoffman explained that with electronic funds, a “transfer has to be initiated by the retailer or industry member no later than the first business day” following delivery, “but in no event no later than five” days after the transaction. She discussed how debit cards had a “really weird carve out where they are allowed to initiate…the payment the day after the delivery,” but staff had heard previous complaints “like somebody drove across the mountain to…make a delivery and the business owner wasn't there to have signed the check…and they would have to go back without leaving the product” (audio - 2m, video).
  • West affirmed that cannabis and alcohol had the “same language” around the timeframe on payments, although Hoffman clarified that a “difference with cannabis is that not everybody has access to the electronic payment services…because of the banking issues.” This made the parity proposed in the petition challenging, she argued. Garza described the restrictions as dating back to the "original tied house law" for alcohol so no “retailer would ever be able to create terms of credit.” But alcohol laws had been changed as industry leaders asserted “we can't control how the banks move money,” Garza commented. “Many of the states have established two, three, and five day credit terms for alcohol over the years,” but Washington officials hadn’t allowed that (audio - 2m, video).
    • Postman followed up by asking about policies around vertical integration of alcohol in other states (audio - 3m, video) as well as whether the practice of allowing leeway in payment terms "eats at the tier system" or could be tracked (audio - 1m, video).
  • Alluding to WAC 314-55-018 on prohibited practices regarding contracting and money advancing as one licensee having “undue influence” over another, Vollendroff wondered how that rule impacted conversation about the petition. West felt that rule “bridges that gap a little bit…it talks about advancing….money's worth and money advances, that those are extensions of credit and you cannot enter agreements” doing those things (audio - 2m, video).
  • Postman asked whether Sherman had offered an explanation about “the harm to them for not having this” payment option in rule. West indicated that Sherman “just cited logistical issues. He did not go into anything specifically.” She said he’d not followed up with additional “context of why he submitted the petition,” but had the impression it related to “logistical issues…and not being able to deliver,” adding that “I know in other states that's been an issue” (audio - 1m, video).
    • Sherman subsequently emailed agency representatives detailing how the petition came about “as a result of a suggested bill to allow payment terms to our industry that our organization was not in favor of.” In order to “remedy the issues that are leading to efforts to introduce credit terms in the legislature,” the petition was drafted to provide “an efficient system that allows for flexibility for all involved.” He concluded WSCA members felt “by adopting this allowance it will allow a more convenient, faster, safer, and more flexible way to get checks back to producers without extending credit terms.”