WA Senate WM - Committee Meeting
(February 22, 2024)

Here are some observations from the Thursday February 22nd Washington State Senate Ways and Means Committee (WA Senate WM) Committee Meeting.

My top 2 takeaways:

• The need for a public hearing in the Senate on HB 2320, "Concerning high THC [tetrahydrocannabinol] cannabis products," was briefly debated by committee members before they voted to recommend the measure.
  • The bill was amended at the request of the bill sponsor, Representative Lauren Davis, and recommended by the Washington State Senate Labor and Commerce Committee (WA Senate LC) on February 19th without a public hearing. The last opportunity for the public to testify on HB 2320 was during the bill’s fiscal committee hearing on February 3rd where no one spoke besides the bill sponsor, although this may be due to the less than 12 hours notice given before that hearing. Amendments were added in every committee which received the bill.
  • In the WA Senate WM meeting, Vice Chair Joe Nguyen invoked Senate Rule 49, which permits committees to forgo public hearings “when the committee is considering a bill whose official companion [bill] has already been heard.” He identified HB 2320 among several bills which qualified for movement directly to executive session (audio - 1m, video).
    • WA Senate LC and WA Senate WM had hosted hearings on SB 6220, the companion for HB 2320, on January 22nd and February 3rd, respectively, but WA Senate WM leadership chose not to advance the companion legislation further.
    • Senator Lynda Wilson asked whether any of the bills were “substantively different” from their companions. Staff identified both HB 1371 and HB 2320 as changed, describing how the latter bill was “different than the Senate. Their version of the bill that was heard here…there was a committee strik[ing amendment] adopted in [WA Senate LC] that adds some of those components back, but not all of them.” Chair June Robinson proceeded with the vote and asked  that, “as staff brief us, you make sure to highlight the differences between the current version and the bill as we had seen it earlier” (audio - 1m, video).
    • Senator Karen Keiser argued HB 2320 was “not a companion bill at this point, it was changed in committee and it needs a hearing.” She clarified that the WA Senate LC, where she was the chair, amended the bill “and I believe that the full Ways and Means Committee should consider the impact of the amendment.”  Majority Leader Andy Billig could be heard encouraging Robinson to interpret Keiser’s opposition as a ‘no’ on the motion to invoke Rule 49 (audio - 1m, video).
    • The majority of committee members voted to apply the rule to HB 2320 and other bills as Keiser and several other senators dissented. “I will ask staff to make sure to clearly brief the differences between…the version that's before us for executive session, and the version that we heard, and if we need to hold bills we can do that if you're not prepared to brief us in that way” (audio - 1m, video).
  • Fiscal Analyst Monica Fontaine briefed on the second substitute version of HB 2320 using the WA Senate WM bill report (audio - 2m, video)
    • “Requires the Department of Health (DOH) to develop optional training for retail cannabis staff as well as a notice that cannabis retailers must conspicuously post at the point of sale for consumers, related to possible health risks and impacts of high-tetrahydrocannabinol (THC) cannabis and available resources.
    • Provides Legislative intent to provide DOH funding to provide public health messaging and social media campaigns.
    • Requires the University of Washington Addictions, Drug & Alcohol Institute to contract to develop and implement guidance and health interventions for health care providers, certain patients, and for other uses, with reports and subject to funding.”
    • Fontaine mentioned the striking amendment incorporated into the bill draft by WA Senate LC, stating the change “added legislative intent to provide recurring funding for the Department of Health for a contracted public health campaign related to consumption of high THC cannabis,” and  “directs the University of Washington, rather than the Health Care Authority, to develop guidance and health interventions.” She added that the “substantive differences between the underlying senate bill and the bill that has been referred to this committee” included “that it originally required the Liquor and Cannabis Board to define high THC cannabis products and to consult with federally recognized tribes.”
      • Fontaine didn’t identify other differences between HB 2320 and the companion legislation, specifically the revision of the legislative intent and the House removal of the age restriction for high THC items. She also failed to specify the recurring DOH funding was for an entirely new section no Senator had heard public testimony on.
    • Fontaine referred to the fiscal note for the substitute version, which had “a four year cost of $2.8 million of which $1.7 million is General Fund-State [GF-S].” While a null and void clause had been added, it didn’t “change the fiscal impact,” she said. Fontaine further noted the “house did partially fund this” in the latest version of their operating budget on page 390.
    • Find out more from the legislative update for February 23rd.
  • After caucus, Robinson announced their decision not to move ahead with HB 1371. But the committee did take action on HB 2320, recommending the bill be passed and referring it to the Washington State Senate Rules Committee (WA Senate RULE) in a voice vote without any member remarks (audio - <1m, video).
    • WA Senate WM heard HB 1371 in March 2023, but took no subsequent action, returning it to the House where it was amended and passed on February 8th. Under the bill report when it was first referred to WA Senate WM, the bill “Creates various business and occupation, retail sales and use, and public utility tax exemptions and credits for Class I, II, and III railroads and other eligible taxpayers for donated materials, maintenance, modernization, and new construction on short line railroad tracks.” The latest bill report repeated the description, only removing the reference to Class I, II, and III.

• A public hearing was held on HB 1453, "Providing a tax exemption for medical cannabis patients," and committee members added another amendment before a key legislative cutoff.
  • After passage by the House on February 9th, the WA Senate LC heard testimony and a majority of members voted to recommend the bill without further changes on February 19th.
  • In the WA Senate WM meeting, Revenue Counsel Alia Kennedy read from the updated bill report that HB 1453 provided “a permanent tax exemption from the 37 percent cannabis excise tax for qualifying patients and designated providers with a recognition card on purchases of cannabis products that are labeled as Department of Health (DOH)-compliant product and tested in accordance with the DOH's rules” (audio - 2m, video).
    • “Retailers making exempt sales must maintain information establishing eligibility for the exemption,” said Kennedy, also indicating “the exemption [was] permanent and not subject to tax preference performance review or expiration.
    • Referring to the fiscal note, Kennedy commented “all revenue from the cannabis excise tax [was] deposited in the Dedicated Cannabis Account,” and the proposal was “likely to reduce cannabis excise tax revenue. However, the amount is indeterminate; the fiscal note does indicate that medical cannabis represented about 1% of all cannabis sales.” WSLCB staff had estimated “that the bill could reduce cannabis excise tax revenue by about $5.1 million each year, and last there are ongoing expenditures of $49,000 for [WSLCB] administrative costs.”
    • Robinson asked Kennedy to confirm that WSLCB was estimating $5 million a year in taxes collected (audio - 1m, video).
      • The initial WSLCB fiscal note in 2023 used data reported by retailers to more directly calculate tax revenue collected by sales of DOH-compliant cannabis products to registered patients. That estimate revealed only “$541 during the 4th quarter of 2022,” leading to an estimate “$2,164 in taxable sales that met the criteria in the bill. Applying the 37% tax to these sales comes up with an estimated $801 per year in cannabis excise tax that would be lost under this bill.”
      • The revised fiscal note analysis by WSLCB staff acknowledged “Non-zero but indeterminate cost and/or savings” and the discussion on cash receipts stated “about 1% of FY22 sales were retail sales tax exempt (made to cardholders). In fact, the percentage of tax-exempt sales appears to be declining almost every year since 2017.” Staff has presumed “this policy creates an incentive for more customers to obtain a recognition card to take advantage of the savings. Assuming there is a demand for product that meets the DOH testing standards, and the supply meets the demand, then there is the potential that there could be a significant negative impact to cannabis excise tax revenue.” 
      • Kennedy pointed out that in fiscal year (FY) 2022 one percent of cannabis excise tax revenue was $5.1 million. Officials writing the fiscal note weren’t certain “how much more cannabis product would be produced that meets the standards of WAC 246-70-040, and how many more patients would take advantage of the excise tax exemption.”
      • The WSLCB assessment didn’t note that some medically endorsed retailers had applied the tax exemption to patients with a doctor’s authorization who hadn’t registered in the DOH database, or to non-medically compliant cannabis products, given there were few compliant producer/processors. No estimates were offered related to the potential for increased sales should the policy encourage individuals who patronize unlicensed markets to instead obtain cannabis products within the regulated space.
  • Four members of the public spoke in favor of HB 1453.
    • Lukas Hunter, Harmony Farms Director of Compliance and Government Affairs (audio - 1m, video)
      • Hunter found that manufacturing of compliant products was “pretty dismal to a point where there's not a lot of development in the cannabis space for it.” He felt reducing the tax on a medical product made sense, given it was for “medical patients that are statistically not the most wealthy individuals.” Hunter also wanted the policy to bring “more people into the regulated system as opposed to purchasing cannabis from outside the regulated system.” 
    • John Kingsbury, The Cannabis Alliance Patient Caucus (audio - 1m, video)
      • Bringing up the latest fiscal note, Kingsbury cast doubt that there was five million dollars in compliant products on shelves “in the entire system, there hasn't been for five years, and that's part of the problem.” Even if patient registration increased, he argued “significant tax loss…will not happen because people don't appreciate how hard it is for a patient to register in the first place” given the limited list of qualifying conditions and a “professional stigma associated with writing authorizations making it difficult to find doctors willing to do so.” Kingsbury remarked how “even with the removal of the excise tax, medical grade cannabis will still be priced higher than the average fully taxed recreational product.”
      • Robinson wanted to know about the cost of medically compliant cannabis, which Kingsbury responded was “still much higher than the average ounce price, which is about $125 fully taxed, recreational product. It's just a whole different grade of product” (audio - 1m, video).
      • Senator Chris Gildon was curious about the difference between recreational and medically compliant cannabis. Kingsbury replied it was held to a higher testing standard and was more appropriate for those with medical needs. Hunter called attention to the fact that only medical grade items were always tested for heavy metals, “a big liability for any company that's willing to engage in medically compliant product testing. If your batch were to fail for any various reason your whole lot would be destroyed.” Additionally, lot sizes for compliant testing were smaller, meaning “you have to pay it multiple times over with a higher liability” (audio - 2m, video).
      • A DOH medical cannabis rulemaking project has proposed transitioning to the designation ‘medical grade,’ rather than ‘medically compliant,’ and staff have scheduled a webinar on the rule change on Thursday February 29th.
    • Hana Keefe-Guerrero (audio - 2m, video)
      • Testifying to her medical history and need for cannabis products, Keefe-Guerrero “also found as a medical user, a lot of the medical products either are not strong enough, or sold in really tiny amounts for excessive costs. Also, I often cannot find the substrains and cannabinoids that I seek as a medical user.” She had taken to seeking out suitable cannabis outside the licensed market.
    • Sean O'Leary (audio - 1m, video)
      • A “previous producer and processor, currently a medical compliant patient,” O’Leary asked lawmakers to support HB 1453. “The people of Washington state voted for I[nitiative-] 502” and he claimed “part of that bill was to provide tax-free cannabis to medical patients.” O’Leary felt the state would gain tax revenue in the future, although “the lot size of 12 pounds versus 50 for a large producer [was] a huge burden on the clean producers.”
  • On Saturday February 24th, an executive session for the legislation was scheduled for Monday February 26th, the final day for bills to be passed by fiscal committees in the opposite chamber.
  • On Sunday February 25th, Robinson published a striking amendment which would expire “the cannabis excise tax exemption…on January 1, 2034, requires a tax preference performance review by the Joint Legislative Audit and Review Committee [JLARC]” who would have to “submit an initial report to the legislature by December 1, 2029.” 
  • During the executive session on Monday, Kennedy presented the bill’s revenue impacts as “not substantial.” A majority of the committee moved to adopt the striking amendment, and referred the measure to the Washington State House Rules Committee.