WSLCB - Board Caucus
(April 23, 2024)

Here are some observations from the Tuesday April 23rd Washington State Liquor and Cannabis Board (WSLCB) Board Caucus.

My top 4 takeaways:

• Policy and Rules staff went over the implementation schedule for rulemaking regarding HB 1453, an exemption from the cannabis excise tax for registered medical patients (Rulemaking Project).
  • The proposal was passed by the legislature on March 1st, and signed into law on March 14th.
  • Policy and Rules Manager Cassidy West initially explained that the CR-101 was going to be put before board members at the Wednesday April 24th board meeting. From there, she commented that the proposed rule changes was projected to be presented to board members on June 18th, with a public hearing on the language to follow in July. Assuming all went as planned, a CR-103 would be up for consideration in August, and the rules would take effect in September (audio - 1m, video - TVW).
    • With the law slated to take effect on June 6th, endorsed retailers will have to wait at least three months for guidance on how to apply the exemption.
  • Policy and Rules Coordinator Jeff Kildahl provided more definitive dates later in caucus and mentioned that Policy and Rules Coordinator Daniel Jacobs was heading up the project in collaboration with colleagues at  Washington State Department of Health (DOH) and the Washington State Department of Revenue (WA DOR, audio - 3m, video - TVW).
    • Focus groups would be hosted by the agency on June 3rd and 5th.
    • The CR-102 would be presented on June 19th, and a public hearing on the proposed language was anticipated for July 31st.
    • The CR-103 with final rules was scheduled for presentation on August 14th, effective a month later on September 14th.
  • Nordhorn shared that they’d already started to hear “questions from a number of stakeholders. I've even received some questions from tribes on this particular issue. And there's a lot of confusion” (audio - 3m, video - TVW).
    • He explained “under the previous medical cannabis sales and use tax exemption that [was] applied” to DOH-tested medical products, WA DOR eventually “opted to provide an opportunity for that sales…and use tax exemption on any product that a patient was purchasing.” Nordhorn said WSLCB would implement the rules “in a manner that is consistent with the statute…the difference being the 37% excise tax exemption that will be applied on the medical cannabis for patients will have to be…DOH compliant product” 
    • In addition to applying the exemption narrowly to specific cannabis products, in order to enter the exemption “you have to be a medically endorsed store,” selling to a registered patient or designated provider, Nordhorn added.
    • Because an existing exemption for sales and use taxes “was only eligible for medically endorsed stores, people were offering discounts.” Nordhorn inferred that discounts for patients, veterans, and others had become so commonplace, “I think people have confused some of those discounts where they think they're giving an exemption, but they actually only gave a discount in stores that don't have medical endorsements.”
    • As the excise tax exemption would be more “restrictive,” Nordhorn knew he’d continue to receive questions about the policy, and staff were “looking at providing some sort of an explainer for folks. We've been in contact with cannabis trade associations trying to coordinate communication so we can get the word out.”
  • Postman was very curious to see how clarifying the tax exemption would impact the cannabis market and tax collection, stating he was “really curious to see if we get an increase” in availability of medical grade cannabis items. Nordhorn was aware of licensees who were newly interested in manufacturing DOH compliant items or becoming an endorsed store. He noted that the biggest concern raised by trade associations was "making sure that this is done correctly" so there wouldn’t be a tax liability for participating retailers (audio - 2m, video - TVW).
    • The Washington State Joint Legislative Audit and Review Committee (JLARC) will conduct a study of the law to determine if “current levels of cannabis production align with market demand and capacity, including the impact of any additional cannabis producer licenses granted under the legislation” due by June 30th, 2025. 

• Staff reviewed proposed changes for Retail Medical Cannabis Endorsements, including new standards on posting medical consultant hours, stocking of compliant items, and a “cure period” for businesses to address compliance issues (Rulemaking Project).
  • Consistent with her rulemaking update on March 26th, West told board members she would be presenting a CR-102 for the project at the Wednesday April 24th board meeting and with their approval a public hearing would be hosted by WSLCB staff on June 5th. If the rulemaking stayed on this timeline, a CR-103 with revised language would be presented by staff on June 19th (audio - <1m, video - TVW).
  • Policy and Rules Coordinator Denise Laflamme previewed the presentation for the board meeting, emphasizing how staff from the Washington State Departments of Agriculture (WSDA), DOH, and Ecology (WA DOE) had been included in the rule development phase. The focus groups on March 11th and 14th revealed “mostly positive feedback” and she’d included some suggestions in the proposed rule language (audio - 5m, video - TVW).
    • Laflamme referred to the memorandum which highlighted changes related to a new requirement around posting certified cannabis consultant hours, amending the “in stock requirement” which would allow for endorsed stores to have medical grade cannabis “on order,” and then the “cure period” for retailers to remedy non-compliance. Regarding the latter, additional paperwork would be required if a business didn’t fix an issue in time should they want to reapply for an endorsement. Laflamme suggested the goal was a “good balance" between informing patients and practicality for retailers.
    • She told board members Jacobs had “calculated the cost of compliance of these new rules. And while we estimate there will be some, it shouldn't rise to the level of triggering a small business economic impact statement.” Following the June 5th public hearing, Laflamme anticipated offering a CR-103 for board adoption on June 19th.

• The team also provided briefings on eight open rulemaking projects and petitions pertaining to cannabis.
  • SB 5080 Implementation (audio - 2m, video - TVW, Rulemaking Project)
    • West noted the small sample size in the equity survey discussed by Okey, but argued there were “consistent results and data from other states as well as academic research and other literature.” She felt this made the points raised “somewhat reliable.” West remarked that staff was working on a series of questions and a format for a future survey to “follow up on some of the information…and we're also planning on putting out a survey as well for folks who can't attend the stakeholder engagements.”
    • West explained that staff would be hosting public engagements in “mid-May” to review and talk about “changes to the rubric and scoring criteria, which were revised.” Focus groups on draft rules would be set in June and July, and West mentioned her expectation that a CR-102 would be presented to the board in July.
      • This timeline was longer than the one West presented on March 26th, at which point she predicted outreach events would be completed by May.
  • SB 5367 Implementation (audio - 2m, video - TVW, Rulemaking Project)
    • “Another big one” was implementing the 2023 law on tetrahydrocannabinol (THC) regulation, and West mentioned that a series of focus groups would be continued with a session that afternoon on WAC 314-55-105 (Packaging and Labeling) and “briefly review some of the revisions that have been made to…transaction and serving size limits [in WAC 314-55-095] based on stakeholder feedback.” Moreover, she indicated staff would be incorporating “some new language to implement HB 1249 related to the low THC beverages since it does fit in…that section.”
    • On Friday April 26th, another focus group would review “draft proposed changes to the quality control and quality assurance testing sections, as well as the cannabinoid additives section.” On Thursday May 2nd, a final workshop would “review and discuss the draft changes to all of the rule changes.” Written comments would be accepted until May 15th, and West expected to have a CR-102 for board members to consider on July 17th, followed by a public hearing in August with the rules taking effect in September.
      • When the CR-101 was approved in June 2023 West projected having “CR 102 filed, on or after October 25th” and ultimately “effective on February 3rd, 2024.” But after the first three focus groups were held on the project in December 2023 staff made clear the project would take longer, with additional outreach sessions initially projected to continue through March on February 13th.
  • Product Samples (audio - <1m, video - TVW, Rulemaking Project)
    • With several events already scheduled, West relayed officials’ plan to “just disseminate those draft rules publicly and post them on the website to allow several weeks so people can comment on the proposed changes” before a public engagement “to review those changes in late June [or] July, just don't want to stack up too many engagements a week.”
      • When the project began in March 2023 agency officials projected completion on “August 16, 2023.” By December 2023, she referred to this project as being "on pause” as staff looked “at a [CR-]102 in January.” On January 2nd, she announced that her team would resume work on the project in February, and on February 13th, she said “pushing the [CR-]102 [to] May at the latest, probably [was] the most realistic.”
  • Minors on Wholesale Licensed Premises (audio - <1m, video - TVW, Rulemaking Project)
    • Still on schedule since the update on March 26th, according to West the focus group on the issue was planned for June, and a CR-102 would be presented on July 17th. Under this timeline, a public hearing would be hosted by agency officials in August, a CR-103 with final changes would be presented in September, and if adopted would take effect in October.
  • SB 5376 Implementation (audio - <1m, video - TVW)
    • West indicated a rulemaking project regarding the sale or giveaway of cannabis waste material—signed into law on March 25th—would have a CR-101 to begin the rulemaking process presented to the board on May 22nd. A focus group would be convened by staff in June, with proposed changes in a CR-102 published between July and August.
  • Payment Terms (audio - 1m, video - TVW, Rulemaking Petition)
    • West said the accepted petition would have a CR-101 presented by Jacobs on May 8th, “and then the CR-102 will be presented [at the July] 31st board meeting.” Rather than the usual public hearing, “we think that a survey will be most appropriate and get the information we need, and so we're working on developing that to be disseminated in June,” she remarked.
      • On March 26th, West anticipated having a CR-101 on April 24th, but recognized “we may push that back just because he has a lot that day.”
    • Postman later asked whether comparable payment terms were used in the alcohol market. West affirmed it was, and that revising payment terms for cannabis could increase consistency between the two regulated substances (audio - 1m, video - TVW).
  • Employee Stock Ownership Plans (audio - 1m, video - TVW)
    • West described how a petition for rulemaking sought to amend WAC 314-55-035 in relation to “employee stock ownership plans for businesses,” and was being handled by Jacobs who would have a petition response for board members on May 22nd.
  • Banning Disposable Vapor Products (audio - <1m, video - TVW)
    • First publicly mentioned on March 26th, West shared that Laflamme was handing the petition and would also have a response for the board to consider on May 22nd.

• Research Manager Sarah Okey gave a presentation on a social equity applicant survey designed and distributed by WSLCB staff which led to several inquiries about participation from board members.
  • Okey conveyed her excitement providing a “brief overview of the results of the social equity applicant experience survey,” an effort led by her team, but including involvement “with the licensing division, the social equity program team, the policy and rules teams, our communications team, and our public health education liaison” (audio - 9m, video - TVW, presentation).
    • Okey said the purpose of the survey was to help officials “better understand the application process for the [HB] 2870 application in order for us to then make improvements for the next upcoming social equity round.” She explained how every “2870 applicant on our communications listserv” had been contacted via email and given the opportunity to complete the anonymous survey. Available from February 8th to 23rd, Okey indicated that “between that period of time, there were 73 individuals who completed the survey. And that represents about 10% of all of the individual applicants.” This was a “really small sample size,” she acknowledged, meaning “while we can gain insight into the application experience, we do need to remain cautious,” and avoid “generalizing it to the larger group’s experience.”
      • Under SB 5080, the future licensing window was going to focus on issuance of a limited number of processor licenses as well as “up to 52” retail license allotments still available.
      • In September 2023, agency staff reported that there had been “nearly 500 applicants” to the equity program during the first licensing window opened earlier that spring.
      • In October 2023, Director of Licensing and Regulation Becky Smith brought up another survey on self-reported demographics which included just over half—22 or 42—of successful applicants.
    • The presentation included various statistics from respondents highlighted by Okey:
      • She said “29% reported they received a preliminary letter of approval,” even as a “total 46 out of the 494 total applications in the larger pool receiv[ed] a preliminary letter of approval.” She felt this signified “this survey weighs more heavily with those who did receive a letter of approval.”
      • “One aspect that we were interested in is the amount of money applicants spent on the application,” and Okey presented a chart showing “distribution of costs” where “over half reported spending less than $1,000.” She noted “43% reported spending between zero dollars and $500, [although] there were a couple applicants who indicated spending a much larger amount than this range, but she deemed these “outliers in the broader application pool.”
      • “We additionally asked respondents whether they received assistance completing the application [and] most applicants reported receiving some help,” explained Okey. “We did find that within this specific sample, there were some differences from those who had a preliminary letter of approval, and that they had a higher likelihood of saying that they received assistance from lawyers and current licensees.” By comparison, she said “those whose application was withdrawn…this may indicate that within this particular sample that those with a preliminary letter of approval had some more resources.”
      • Okey noted respondents ranked “steps in the application process that were particularly or especially difficult,” and the highest rating for difficulty “was obtaining documents to verify eligibility.” In particular, she conveyed that for “documents verifying loss of employment due to cannabis…over 70% of respondents who tried to obtain documents verifying loss of housing either said that it was impossible to obtain or difficult to obtain.” Most difficult after that “was understanding why their application was withdrawn, and the third most difficult step…was getting their questions answered by LCB,” she said.
      • Following up on the last two reported challenges, “we additionally asked survey respondents [about] how helpful was the information provided on LCB’s website, and how clear were LCB instructions to provide input on rules.” Okey suggested the survey showed “that LCB does have some room to grow in being more clear and helpful with our feedback.” She added responses also suggested among “those who had received a preliminary letter of approval tended to rate LCB as more helpful and as more clear relative to those whose application was withdrawn.”
      • “[I]n general, the majority of applicants or survey respondents reported there was enough time to complete the application,” reported Okey. She indicated they also surveyed applicants “about a range of ways they wish to communicate with us in general, surveys were popular so too [were] in-person meetings, virtual meetings, emails, websites, there were some alternative ways mentioned that we could potentially look into such as text messaging.”
    • Finding effective avenues for communication to applicants and interested parties was important, and Okey stressed staff continued to study responses, and further analysis was expected to be published “in an upcoming social equity blog.”
    • West noted the small sample size in the equity survey discussed by Okey, but argued there were “consistent results and data from other states as well as academic research and other literature.” She felt this made the points raised “somewhat reliable.” West remarked that staff was working on a series of questions and a format for a future survey to “follow up on some of the information…and we're also planning on putting out a survey as well for folks who can't attend the stakeholder engagements.”
  • Board Member Ollie Garrett expressed disappointment the participation rate was so low, and wondered if there was time to try and solicit more responses (audio - 3m, video - TVW).
    • Okey replied that it was possible to re-open the survey, and both Garrett and Board Chair David Postman emphasized the importance of including as much external input as possible as a way to help the effectiveness of the equity program.
  • Board Member Jim Vollendroff wanted a sense of when they could expect more updates on applicants’ experiences with the program. Postman indicated wanting to include Okey during the next day’s Licensing team presentation, and “generally we do these sorts of briefings at the caucus, not for the board meeting, but we should definitely find a way to raise the profile as much as we can” (audio - 1m, video - TVW).
  • With survey responses including a disproportionate number of applicants who had successfully completed the first round of the process, Postman wondered how much weight the survey should be given in future licensing windows. Garrett felt even with the limited sample size, the responses had been consistent with anecdotal claims board members had heard. Postman speculated a larger proportion of respondents who didn’t qualify would have included more negative sentiment about the process (audio - 2m, video - TVW).
  • Postman asked whether “there's a connection between spending more and having more success at qualifying” for licensure (audio - 3m, video - TVW).
    • Okey claimed “not when you separate it out between the groups that did receive a preliminary letter of approval to those whose applications were withdrawn. After excluding those two outliers you didn’t see any real stark differences between the application costs.” Instead, she attributed it to the type of help an applicant received, “receiving assistance, being able to obtain documentation, and then understanding…information we provided on our website and how to provide input on rules.” 
    • Garrett believed using an attorney during the process would have come with costs for an applicant, and Okey recognized that those passing the initial application stage rated lawyers higher, with consultants ranked lowest.
    • Postman wished there’d been more responses, even as he’d been “encouraged to see that [mentorship from] current licensees who helped produce[d] better results for people and…that's something we should try to encourage more of…I assume those that was done without charge, but then we didn't ask specifically.” He was also interested in “people saying they didn't understand why it was withdrawn…we definitely have to think about that, too. And how we communicated all around this”
  • Reflecting on the low rate of participation in the survey, Vollendroff felt staff should be considering what could be done differently but was overall appreciative for the "good example" of what a fully staffed policy and research team could accomplish (audio - 1m, video - TVW).
  • Postman suggested there could be value in “creating that feedback loop with applicants earlier” in subsequent application windows. “And then maybe when we do this after-the-fact survey next time, people [will] just be more engaged with us? Does it work that way?” Okey was supportive of collecting as much data as possible to see changes over time, but warned that staff didn’t want to “overburden” applicants with numerous surveys. Postman agreed, hopeful to “normalize that kind of communication” (audio - 1m, video - TVW).