WSLCB - Board Meeting
(January 31, 2024)

Here are some observations from the Wednesday January 31st Washington State Liquor and Cannabis Board (WSLCB) Board Meeting.

My top 3 takeaways:

• Staff updated on the social equity program, confirming that the first retail licenses had been issued, and spoke about timelines for implementing legislative revisions before the next application window.
  • Staff last briefed on the program on January 10th.
  • Licensing and Regulation Director Becky Smith started off by reiterating that the social equity program had been “intended to create pathways for those individuals most disproportionately harmed by the war on drugs…to potentially gain a retail license.” She said the agency was “in the middle of issuing licenses…for the first round of retail while working to improve and expand the social equity program with the passing of Senate Bill 5080.” She went over a few changes to the program (audio - 2m,  video - TVW, presentation).
    • “We just finished a three series ‘lessons learned’ with the agency,” which involved staff from all divisions
    • Officials were “implementing meaningful ways to receive community feedback.”
    • “We're improving education and outreach to ensure equitable access to the agency.”
  • Smith commented that the social equity team in the Licensing division were “hardworking, and they're extremely talented,” before inviting the group to give more details, including “speaking about the rulemaking project changes to the disproportionately impacted areas [DIAs], to the map as required by law.”
  • Licensing Division Cannabis Manager Linda Thompson talked about “statuses of the current social equity applicants going through the licensing process,” as well as new “information regarding the submission of social equity plans available for all cannabis licenses” (audio - 6m, video - TVW).
    • She explained that two applicants had completed the process and issued cannabis licenses “in Ferry and Snohomish County,” leaving 40 applicants still working through the process:
      • 39 had completed an initial interview with WSLCB, “the last remaining interview is scheduled tentatively for this Friday.”
      • 18 had submitted required documents, “16 were partial document submissions and two submitted all required documents.”
      • Five were seeking locations, and of those, “three applicants secured locations for their retail storefronts and our processing in the King, Franklin, and Grant Counties.”
    • Thompson then brought up cannabis retail title certificate holders who’d already been issued licenses, but barred from operating due to jurisdictional bans and moratoriums. “While all [five] have completed their initial interviews, only one has completed the other three key steps which led to license issuance,” which she mentioned was “located in Clark County.”
    • Thompson had learned funding and finding a permissible location remained the top hurdles for applicants because “the social equity team and Senior Licensing Specialists have been in continuous contact with social equity applicants.” She felt location challenges were “due to distance requirements from restricted entities or…added zoning requirements within their jurisdiction.” Places meeting the requirements were “in an area that would potentially not get as much business, or landlords [were] unwilling to lease” without the rent being “inflated due to it being a cannabis business,” Thompson remarked.
    • Access to capital was difficult as well, she stated, and applicants had reported being “unable to get loans to start their business. Some financial institutions are willing to accept deposits, however loans have not generally been considered for cannabis businesses.” Furthermore, with any “new business venture, securing private investors can also be problematic and there is an assumed higher risk,” said Thompson.
    • She shared how WSLCB staff had been reaching out to local governments with “more information on the social equity program, retail allotments” and would be “reaching out again soon to see what information we can provide to allow cannabis retailers in their jurisdiction.” Thompson relayed that staff were “available to work directly with local authorities to help applicants in moving forward. One example of this is we recently met with [a] representative from King County Who provided a contact for social equity applicants to assist in determining available and viable locations.”
    • Under SB 5080, Thompson explained how cannabis businesses which submitted a social equity plan to WSLCB were eligible for a one-time license fee reimbursement, so “the social equity team in collaboration with other divisions have developed a[n]…operating plan template for licensees to utilize. The social equity operating plan application will be available on the social equity page starting tomorrow, February 1st.” Also available on the social equity page was “an email address…for licensees to submit any questions regarding this process and to submit the completed operating plan,” she remarked.
  • Social Equity Program Manager Aaron Washington pointed to a new social equity blog at the agency, created with the help of Case Manager Sarah Davis and Program Specialists Josephine Waddington and Kelly Hancock (audio - 1m, video - TVW). Hancock provided additional clarification that the blog would be “part of our outreach methods to improve communication efforts with the public,” offer “detailed review of the program, and provide an opportunity to learn more about the LCB’s social equity work.” Blog updates would also “invite public engagement by notifying them directly on how they can get involved as the opportunity arises,” she added (audio - 1m,  video - TVW).
  • Washington told the board that beyond changes to their equity program website, staff were also working on implementing SB 5080. “The team has been reviewing other state social equity programs to inform and add to our efforts to assist those most impacted by the war on drugs,” he said (audio - 4m, video - TVW).
    • Washington noted WSLCB had partnered with staff at the Washington State Office of Minority and Women Business Enterprises (OMWBE) “to learn more about its state certification program,” which “also allows access to the Linked Deposit Loan Program. However, most financial institutions…have not loaned funds for cannabis related businesses due to restrictions by federal regulations,” he clarified.
    • Agency representatives were also collaborating with Washington State Department of Commerce (WA Commerce) staff, whom Washington said had “received over 20 bids from businesses interested in their requests for proposal for the cannabis social equity technical assistance and grant program” which were being reviewed. “Once the department has awarded the contract…representatives will share next steps with the public,” he concluded.
    • Washington described how staff had engaged in “lessons learned sessions to identify where the program has seen success and opportunities for improvement,” along with generally looking at “reducing barriers to entry to the cannabis market for those most directly impacted by the enforcement of cannabis related laws.”
    • Although retail licenses had been issued under a process first established by HB 2870passed in 2020, Washington said the expansion to production/processing licenses in SB 5080 “require[d] key changes for the LCB to meet the following tasks.”
      • “LCB is to issue up to 52 new retail licenses, also ten producer and 100 processor licenses as well
      • “We are to expand the disproportionately impacted area maps as defined and required” in SB 5080
      • “As Linda Thompson mentioned, we are to allow a one-time reimbursement of renewal fees for only one license with the submission of the licensee’s social equity plan.
      • “And the LCB [would] establish a threshold for the number of new retail, processor, and producer licenses that can be allotted in each county.”
  • Policy and Rules Manager Cassidy West established that the rulemaking project had been opened by board members in November 2023 and she was leading on drafting the updates outlined by Washington. West commented that the project could include “adding rules, repealing rules, and updating existing rules” (audio - 5m, video - TVW)
    • The presentation included a tentative timeline with several rulemaking process benchmarks for the project:
      • Informal public comment period will close on Feb. 29, 2024, at 11:59 P.M.
      • April/May 2024 Develop policy options to consider and draft proposed rules.
      • May 2024 Request Board approval of CR-102.
      • June/July 2024 Request Board approval of CR-103.
      • Aug./Sept. 2024 Rules become effective.
    • West stressed, “we are limited by certain filing dates and…Code Revisor filing. So, that's why there's no real specifics here and things can change.” She highlighted the agency rules page, and explained public input could be done at outreach sessions, submitted in writing, or by testifying at a public hearing. West promised to contribute rulemaking updates to the new equity blog, “so that folks can understand more…ways to engage and the information that we'd like to get from the public.”
  • Senior Education and Policy Manager Kaitlin Bamba delved into the updated DIA maps, as having resided in a DIA between 1980 and 2010 was “one of the four minimum requirements that may qualify an applicant for the program.” As SB 5080 had modified DIA criteria, she reviewed how many census tracts were included in each decade and indicated these were places “in the top 15% on two of the following indicators” (audio - 6m, video - TVW):
    • “The area must have a high rate of people living under the federal poverty level,
    • “A high rate of people who did not graduate from high school,
    • “Unemployment, and/or 
    • “A high rate of people receiving public assistance”
    • Bamba referred to the changes in overall census tracts for each decade, conveying her assumption that a higher number of tracts inferred more people would potentially qualify to apply.
      • 1980 - 11 tracts were removed, leaving 123 tracts included.
      • 1990 - 82 were added, resulting in 182 qualifying tracts.
      • 2000 - 63 tracts added, raising the total to 216 tracts.
      • 2010 - 105 were added, leading to 244 qualifying tracts.
    • DIA maps would be interactive, “so folks can actually go in and zoom in specific areas and you'll be able to see more clearly,” or search by address, Bamba stated.
    • Bamba welcomed feedback “to see if there are additional indicators should be used in determining these areas.” No indicator in law could be removed, but WSLCB “may have authority to add additional demographic indicators to best define areas most impacted by the war on drugs,” she said. Bamba encouraged “those who applied for the program last year, as well as others that may be interested in the future program, review…maps and check their addresses” to ensure they still qualified.
    • “We are requesting that feedback be sent directly to the email…here, which can also be found on our website, by February 29th,” added Bamba.
  • Board members then posed several questions about eligibility, the timeline, funding, and offered other comments.
    • Board Chair David Postman wondered how many more people might be eligible under the DIA map changes. Though Bamba wasn’t certain, she calculated the largest increase to be “around 420,000 people, I would say for 2010.” Postman then noted they’d be able to issue more licenses under the modified program (audio - 1m, video - TVW).
    • Looking at the rulemaking deadlines and presuming no “substantive changes” in proposed rules to implement SB 5080, Postman asked, “when might applications open?” Smith replied that officials would need to start a new process to select a third-party vendor to review and score applicants after rules were finalized, estimating the next application window might open in "December, if not January of 2025" (audio - 2m, video - TVW).
    • Board Member Ollie Garrett noted monies from WA Commerce would be for technical assistance for a business, rather than “running, or starting the business.” Washington explained that staff had discussed the issue with WA Commerce officials, but “grants specific to business needs, Commerce still has to outline how that may or may not look” (audio - 1m, video - TVW).
    • Garrett felt, “compared to when I walked into the agency six or seven years ago," she was "really pleased with where we are today.” She saluted the “dedication and commitment of staff to be responsive to the public, “and trying to incorporate everything that we can within law to make this program accessible.” Recognizing that serious barriers still remained, she felt "just as disheartened by the challenges as the folks that are coming in are" (audio - 2m, video - TVW).
      • Board Member Jim Vollendroff praised Garrett’s contribution to the program, “as a board member, it's been just gratifying to see you in that role and to see where the program is now” (audio - <1m, video - TVW)
    • Vollendroff wondered about the specific roles social equity staff fulfilled. Washington answered that Hancock tracked the program and rule compliance, Waddington was handling outreach like the blog, and Davis was staying in touch with retail applicants (audio - 2m, video - TVW).
    • Postman observed that there were still chances for public input on SB 5080 or the program as well (audio - 1m, video - TVW).
  • During public comments, Paul Brice, Happy Trees Owner and former Washington State Legislative Task Force on Social Equity in Cannabis (WA SECTF) “community advisory member,” said “we knew the tent was for Black or Brown, most harmed.” However, after “going out in the field talking to a lot of…licensee winners and whatnot,” of 12 he’d met so far, “it seems pretty much, six Black or Brown, six White…I don't know if we met the target…we were hoping to, to reach.” He hoped to continue being involved in cannabis policymaking, and asked if “something can be there for…Black pioneers in this industry or people that had collectives” for medical patients. Though Brice didn’t apply in time for the first round of equity licenses, he’d purchased a title certificate and planned “to contribute a lot of time to have this successful program” (audio - 2m, video - TVW).
  • Black Excellence in Cannabis (BEC) Co-Founder Peter Manning shared that he’d heard “yesterday [from] a lobbyist that I was…stuck in 2016” when he’d been  “telling the LCB that there wasn't enough Black and Brown inclusion in the cannabis industry.” He retorted, “that lobbyist is way off,” since BEC members had applied and “my sister got a store,” his friend and cousin each got licensed as well, “so the program did work and I am not in 2016 anymore.” However, the lack of funding options and grant delays didn’t help when “we knew that there was 40 licenses, we knew the money was approved,” yet, Manning pointed out, “the mentors and facilitators got that money.” He had contacted both WA Commerce and WSLCB staffers, and been told to speak to the other agency. The situation benefited existing licensees, Manning reasoned, whom he alleged were “slapping up makeshift daycare centers to prevent social equity applicants from obtaining space,” plus “stores that are currently up that are not running…just taking up space, but no social equity application can be put there.” He argued the long implementation of equity licenses gave entrenched interests an advantage “because they knew this program was coming.” Some blame rested with the Black and Brown communities, Manning added, suggesting “we're letting others define our position.” He summed up that “we need the funding, we need this program to get off the ground” (audio - 4m, video - TVW).

• Policy and Rules Coordinator Denise Laflamme presented a recommendation to accept a rulemaking petition seeking to include heavy metals among required cannabis testing (audio - 7m, video - TVW).
  • Medically compliant cannabis was required to be tested for contamination by heavy metals (HM), however adult use cannabis testing rules in WAC 314-55-102 haven’t included them. The petition was first mentioned by West on January 9th.
  • Laflamme led with her recommendation to accept the petition submitted in December 2023 by Jim MacRae right away, “because we believe we have the authority to do what is being asked without legislative direction.” She then explained how she’d reached that conclusion.
    • While testing for heavy metals hadn’t been required of non-medically compliant items, she indicated that HM limits were in rule already. If a random product test conducted at Washington State Department of Agriculture (WSDA) labs showed HM above those limits, WSLCB had authority to take action.
    • MacRae had argued that HM had already shown up in product samples, and Laflamme stated that “since 2021, two samples reported to the CCRS [Cannabis Central Reporting System] system have exceeded metal screening levels…and both were for lead.”
    • “Less than 1% of total cannabis samples submitted to CCRS were tested for heavy metals,” Laflamme told the board. She speculated that in 2022 and 2023, “metals testing results appear to be under-reported…based on the expected number of DOH [Washington State Department of Health] compliant products.”
      • Compliant products made up a small fraction of all cannabis sales, according to a 2023 fiscal note for HB 1453, “Providing a tax exemption for medical cannabis patients.” WSLCB staff had used CCRS data and determined “cannabis sales that were sales of DOH compliant cannabis products to recognition cardholders [in 2022 was] equal $2,164 in taxable sales that met the criteria in the bill.  Applying the 37% [excise] tax to these sales comes up with an estimated $801 per year in cannabis excise tax that would be lost.” Though, “the amount exempted has the potential to increase as cannabis processors may be incentivized to bring new products to the market…the Board makes no assumption regarding a potential increase in sales of DOH compliant products.”
    • Laflamme reported that other states with legal cannabis policies “report having more exceedances for metals, which could be related to better reporting of testing results, or lower screening levels.” She indicated that “currently at least 13 states include requirements for metals testing of adult use cannabis.”
    • Cannabis plants had been shown to accumulate HM in leaves and flowers, she noted, and the petition called attention to regions of Washington known to have had HM contamination, or “soil associated with historical use of certain pesticides, industrial emissions, and prior use of leaded gas.”
      • In spring of 2023, a WSLCB investigation discovered legacy pesticide contamination in a region of central Washington, resulting in an initial announcement of emergency rulemaking, which agency leaders subsequently decided weren’t necessary.
    • Given negative consequences for health, Laflamme said that she’d consulted with DOH staff who “provided support for accepting this petition.” She acknowledged that the board had seen fewer compliant products being submitted, and there was concern medical cannabis patients were using non-medically compliant items, leaving them “at higher risk of harmful effects from exposure to metals.”
    • Enacting the change in the petition would put all cannabis products “on a level playing field” with regard to HM, she argued, as well as protecting cannabis consumers more generally, and making more data available for CCRS. A drawback was that HM testing “adds about a hundred dollars to the base” testing costs for a sample,” Laflamme said, “which [was] about…two hundred and fifty dollars.” Moreover, only two labs in the state were accredited for HM testing, though labs that couldn’t do this testing were permitted to “subcontract samples to other laboratories who can test for metals.”
    • According to Laflamme, HM was initially included in 2022 rulemaking which added pesticides to mandatory testing rules, but feedback on cost concerns led to removal from required testing. She stressed that even if accepted, the Policy and Rules team wouldn’t start rulemaking until ongoing projects related to cannabis lab standards at WSDA and accreditation at the Washington State Department of Ecology were concluded.
    • To date, she relayed that staff had received two comments on the petition, one supporting the request, and a follow up email from MacRae asking that the petition be undertaken as emergency rulemaking. However, Laflamme felt emergency rulemaking “would not be appropriate as we would not be required to hold public hearings or conduct analysis,” such a rule would only be temporary, “and emergency rules may only be used under specific circumstances.”
  • Postman was supportive of the change, but wanted to be sure a small business economic impact statement (SBEIS) would be conducted. Laflamme affirmed this was a normal part of the agency rulemaking process (audio - 1m, video - TVW).
  • Vollendroff was amenable to the change, but agreed it didn’t rise to the level of emergency rulemaking (audio - <1m, video - TVW).
  • The board voted to accept the petition (audio - <1m, video - TVW).

• Policy and Rules Coordinator Jeff Kildahl recommended against accepting another rulemaking petition regarding shared space and surveillance, prompting some questions from the board before acceptance of staff guidance.
  • The petition was also mentioned by West on January 9th.
  • Kildahl explained that the request had been submitted in December 2023 by Ezra Eickmeyer, Producers Northwest Founder, and referred to WAC 314-55-075(1)(b) which defined a buffer between different licensed premises sharing the same outdoor facility, along with WAC 314-55-083 which related to surveillance of licensed cannabis facilities. Eickmeyer was seeking specific changes to rule that “would affect physical buffer and barrier requirements between multiple adjacent outdoor cannabis grows if owned by the same licensee.” Kildahl said, “a licensee who owned multiple producer licenses would be allowed to locate their licensed outdoor grows together, sharing the common fence line without a 20 foot barrier between them, and removing the physical barrier requirement” altogether. The requested change would also “allow licensees that own multiple licenses to share an alarm and surveillance system,” he added (audio - 5m, video - TVW).
    • “It should be noted that current rules do not prevent licensed producers from using a shared alarm system regardless of whether the production occurs indoors or outdoors,” Kildahl stated. Furthermore, “a component of the petitioner’s request regarding the use of cloud storage for surveillance video” also wasn’t prohibited under existing rules, which the board had clarified when withdrawing a separate petition on cloud storage in June 2023 in favor of written guidance.
    • Kildahl felt one implication of the rule change would be to “aid consolidation of a limited number of large cannabis production facilities, making large premises even larger.” It could also contribute to “regulation inconsistency, possible increases in diversion or product inversion, and would give operational advantages to those growers owning more than one single license,” he said.
    • Another concern Kildahl had was that the requested rule “would likely have disproportionate negative impacts on social equity licenses contrary to the goals of the social equity program.”
  • While appreciating a need to reduce “undue barriers for licensees,” he remarked that enacting this change would “be a major…policy shift,” and recommended the “board deny Ezra Eickmeyer's petition.”
  • Vollendroff was curious how many licensees would be impacted by the petition. Kildahl replied that “we would only be talking about approximately 20 licensees who have multiple licenses who have production facilities that are in close proximity to each other…I'm not sure if that's an exact number, but it's somewhere in that neighborhood” (audio - 1m, video - TVW).
  • Postman was uncertain how this would negatively impact smaller producers. Kildahl said, “in our analysis we realize that, that by consolidating the fencing and screening requirements there could be a savings realized. There’s sort of an economy of scale and…it could permit a canopy area of 90,000 square feet to be inside of one fenced area.” He suggested this was “much more than what was contemplated by the rules,” which limited tier 3 facilities to 30,000 square feet. “This would allow for two acres….in one production facility, which would be like creating a tier 4 grower,” argued Kildahl, who said a licensee could then consolidate operations because a lack of “internal barriers in the facility would allow them to share resources, and probably operated at a greater profit than smaller producers” (audio - 2m, video - TVW).
  • Postman clarified that the deadline for board action on the petition was that day (audio - <1m, video - TVW).
    • During the preceding day’s Board Caucus Laflamme offered a more thorough overview of the heavy metals petition and her recommendation while Kildahl shared few details on his petition beyond affirming the scheduled presentation (audio - 2m, video - TVW).
  • Postman then commented that he was fine with denying the petition, but “we need to start looking at, where can we make some common sense changes.” He suggested the restrictions in the petition “might have been much more important to us ten years ago when we all had no idea how hard we might have to fight the federal government on it.” He wanted staff to look into similar changes even if the petition didn’t move ahead, adding, “I don't want to create more of an unfair advantage for anybody, so we need to keep that in mind as well” (audio - 1m, video - TVW).
    • On January 10th, agency leaders discussed the challenge of developing petition recommendations in time to schedule for board action.
  • Garrett agreed on the need for more legacy regulation review when the board members voted to deny the petition (audio - 1m, video - TVW)
  • Eickmeyer spoke during the public comment period to share his disappointment that the petition wouldn’t be moved ahead, along with his gratitude that board members wanted to look for opportunities to modernize their administrative code. He felt the barrier restrictions were “created during a period where we did not know how the federal government was going to respond” to state-legal cannabis markets (audio - 4m, video - TVW).
    • The “broader ask” Eickmeyer had for board members was to “put some conscious time and energy into going through the rules and looking at those that no longer serve any public safety benefit whatsoever, that don't really have a good public policy argument anymore, but are still costing our industry money.”
    • He asserted the cannabis sector was “providing a lot for the state and I have to say as a lobbyist that's represented over 15 industries over the last two decades, this industry is going above and beyond trying to prove itself, that it's a good citizen trying to do the right thing.” He argued that industry representatives had lobbied for “more money appropriated to underage prevention campaigns…that's going to cost us customers in the future and we're fine with that.” Eickmeyer also said that most of the industry in Washington were small businesses, challenging the presumption that the licensees impacted by his petition should be considered big companies.
    • Eickmeyer projected that when federal cannabis laws were changed, “we are going to be forced to compete with the entire nation on cannabis sales, and producer processors from other states are going to flood in trying to take our shelf space in that scenario.”
    • He was hopeful licensed cannabis businesses would eventually collaborate “just like the wine industry,” which Eickmeyer claimed “d[idn]'t differentiate between the size of their business or winery or whatever, they all work together to promote sales of Washington wine across the country. We need to start preparing now to be competitive on the national scale and we need to stop these narratives both in the public, but I think also within…governmental bodies.”