WSLCB - Board Caucus
(August 2, 2022)

Here are some observations from the Wednesday August 2nd Washington State Liquor and Cannabis Board (WSLCB) Board Caucus.

My top 3 takeaways:

• Policy and Rules staff went over several rulemaking projects and described staff assignments for a half dozen petitions received in early July which the team had been evaluating and preparing recommendations on.
  • Cannabinoid Regulation (audio - 1m, WSLCB video, TVW video, Rulemaking Project) 
    • Policy and Rules Manager Kathy Hoffman noted public participation at the July 28th forum on conceptual rules and told the board her office had received three more written comments since then. “We’ll take a look at those and determine what our next steps will be” within the “next couple of weeks,” she said.
  • Canopy and Advertising (audio - 1m, WSLCB video, TVW video). 
    • Hoffman reported that Policy and Rules Coordinators Jeff Kildahl and Rober DeSpain would be presenting CR-101s to start rulemaking projects for cannabis canopy and advertising, respectively, “by the end of the month.” She forecast “significant opportunity for stakeholder engagement and revisions” reflective of the “current regulatory and authorizing environments.”
    • The canopy project was last mentioned by Hoffman on July 12th, and the advertising project was last discussed on June 15th.
  • Contact Information (audio - 1m, WSLCB video, TVW video)
    • Brought up by Hoffman on July 5th, she relayed that Policy and Rules Coordinator Audrey Vasek would use expedited rulemaking “at the August 17th board meeting” to change email and “physical addresses throughout LCB rules as a whole.” Absent public comment which necessitated changes, the board would forego a public hearing and be presented with a CR-103 to adopt the changes by staff on October 26th, taking effect one month later on November 26th.
    • Board Chair David Postman checked on the necessity of the changes, and Hoffman responded that some rules had agency contact information in them and officials were “going to be taking out things like phone numbers” because “things that’ll change, can change” (audio - 1m, WSLCB video, TVW video).
  • Rulemaking Petition Update (audio - 4m, WSLCB video, TVW video).
    • The board agreed with a staff recommendation to deny a petition to make curbside and walk-up cannabis sales permanent on July 20th.
    • Having indicated an influx of petitions in the preceding weeks, Hoffman remarked that she’d “received another rule petition yesterday” during a “busy July and August for the Rules team."
    • She identified two “sort of similar” petitions “concerning the allowance of minors in licensed cannabis production and processing businesses” sent on July 6th.
      • “One asks us to consider making the temporary allowance permanent of minors under 16 on those premises when in-person schools were closed during the [coronavirus] pandemic.”
      • “The other petition asks us to consider allowing the employees of contractors engaged in construction…who are over 16 to be on licensed cannabis premises.”
      • DeSpain would “be providing staff recommendations on these petitions at the end of the month.”
    • Hoffman stated a petition was received on July 8th to update and “streamline” WAC 314-55-096 concerning cannabis vendor “education and internal quality control” sampling. Kildahl would write the staff recommendation by the end of August, she added.
    • Another petition on July 8th requested modification of WAC 314-55-083 and 087, concerning traceability and recordkeeping rules to permit “cloud storage options,” Hoffman said. She explained that this position was focused on cannabis rules, but staff were “also considering” implications of that allowance for alcohol and other WSLCB licensees. Hoffman commented that Vasek would be the lead in responding to that petition.
    • Another cannabis petition on July 11th asked for a rule change to allow licensed producers “to package their own cannabis and sell it directly to retailers,” commented Hoffman. Vasek would prepare a recommendation for presentation to the board, “likely on August 17th.”
    • Also on July 11th, a petition was received asking the board to “remove the residual solvent limits” for ethanol of “5,000 parts per million” which Kildahl would craft a response to by the end of August.
    • Hoffman noted another petition received on July 28th pertaining to alcohol rules “to allow clubs to add one additional membership drive per calendar quarter” as well as two consecutive membership drives in “one quarter per calendar year.” She anticipated Vasek would have a recommendation prepared “probably mid-September.”
    • Postman inquired about a newly received petition on “sale of Oregon wine to Washington,” noting that after looking at a staff memo, “I don’t get that one.” Hoffman gave assurances she’d follow up with him (audio - 1m, WSLCB video, TVW video). 
    • Postman then checked if petitions involved accepting “stakeholder input,” which Hoffman acknowledged wasn’t required. She called out how unusual it was to have so many, as, “usually, they’re spread out” (audio - 1m, WSLCB video, TVW video). 

• After staff took additional time to consider and consult on proposed rules to implement a social equity retail licensing program, board members were briefed on the many revisions to the rulemaking project which officials would present as a CR-102 at the following day’s board meeting.
  • Board members last talked about the delayed project on July 12th and spoke about possible litigation related to equity programs with Colette Holt, an attorney and Owner of Colette Holt and Associates, which had completed several disparity studies for municipal and state agencies in Washington.
  • Hoffman commented that the Wednesday August 3rd board meeting would include presentation of the “new” CR-102 with proposed changes to implement the social equity program - which also featured a 60 page memorandum. Initially opened in October 2021, she suggested rule development followed separate tracks for “revisions and updates to existing licensing rules,” in addition to “creation of new rule section” to establish a cannabis retail social equity program (audio - 4m, WSLCB video, TVW video).
    • Citing the March 23rd listen and learn forum on social equity which included “over 120 individuals,” she said that input from the event was “used to finalize our proposal,” approved by the board on April 13th. However, as staff continued contemplating those proposed changes, Hoffman’s team chose to withdraw the initial CR-102 on May 11th, when leadership at WSLCB described the effort as potentially benefiting from additional “research, outreach, and analysis.”
    • She then reviewed attachment H of the memorandum comparing changes between the old and new proposed rule language. Hoffman established the key differences:
      • “Expanded the definition of family member to include a sibling of a child” as well as “domestic partners,” something that “expands the definition for clarity.”
      • “Added the word ‘program’ to the definition of social equity applicant [SEA], to make it clear that…there’s a difference between just a ‘social equity applicant,’ and a ‘social equity program applicant.’”
      • Removed “language from the definition of ‘social equity contractor’…to make the definition more clear”
      • “Added language to ‘social equity licensee’” in order to better distinguish “a social equity program applicant, and an actual social equity licensee.”
      • “Added the definition of ‘social equity title certificate holder.’”
    • Members of the Seattle City Council had been considering passing local ordinances to advance industry and labor equity goals throughout 2022. Drafts of the ordinances had been forecast to be publicly available on August 1st, but had yet to appear on the Seattle Legislative Information Center at publication time.
  • Hoffman expounded upon the new section, WAC 314-55-570, telling the group the scoring for SEAs living in disproportionately impacted areas (DIA) had gone from requiring residency in a DIA for six months to “five years between 1980 and 2021.” She called this a way to “really distinguish” applicants who’d lived in “that area at that specific time period” (audio - 3m, WSLCB video, TVW video). 
    • The scoring rubric for applications had changed, according to Hoffman, allotting more applicant points for a drug offense conviction and additional points for cannabis convictions.
    • The rubric previously “just said ‘you could receive full points if you’d suffered homeloss, or ability to purchase a home, related to conviction.’ We now say ‘arrest or conviction,’” she explained.
    • “We increased points for owning, or operating, a dispensary licensed as a business, before July 1” 2016, Hoffman attested, feeling the new phrasing was “very specific,” and allowed more points if the dispensary had a business license in a DIA area.
    • She said the overall points in the rubric had increased from “250 to now, 320.”
    • Postman asked if points awarded to applicants for having had a medical cannabis dispensary were cumulative with the new points for having operated a dispensary in a DIA. Hoffman demurred, though she pointed out the draft said “or” when assessing points for that category. Postman stated he’d circle back with them on the matter (audio - 2m, WSLCB video, TVW video). 
    • The revised period of DIA residency tracks with the scoring rubric drafted by the Washington State Legislative Task Force on Social Equity in Cannabis Disproportionately Impacted Communities Work Group and included in recommendations adopted by the full task force in September 2021.
  • Hoffman went over other changes in the CR-102 (audio - 3m, WSLCB video, TVW video).
    • Subsection (4) added language for “license transfer, assumption” and removed other wording “for clarity’s sake.”
      • As explained in the week ahead, “The prohibition on transferring social equity licenses for 5 years to anyone but another qualifying SEA was extended to also prohibit license assumptions, the de facto procedure for selling cannabis businesses in Washington state without appearing to directly sell the limited license.”
      • While this additional restriction on social equity licensees was a response to concerns voiced in public meetings about the potential to flip licenses, it may also diminish the pool of potential buyers and exit options for social equity business owners. At publication time, no such restrictions had been publicly countenanced for existing retail licensees.
      • In RCW 69.50.335(6)(c), legislators established that "Social equity goals" means, in part “(i) Increasing the number of marijuana retailer licenses held by social equity applicants from disproportionately impacted areas.” Therefore, the restriction on transfers and assumptions would also serve the purpose of fulfilling a metric established by the state legislature.
    • Subsection (5) dealt with title certificate holders “meeting the requirements” as an SEA being able to “reinstate their license anywhere within the county that they hold their certificate.”
    • The previous subsection (5) was changed to subsection (6), but not otherwise altered.
  • With board approval, Hoffman said she’d file the CR-102 and a public hearing would “be scheduled for September 14th.” Assuming no further revisions or delays, she believed a CR-103 to adopt the changes could be offered “September 28th, with an effective date very shortly thereafter.”
    • Hoffman made clear that even “under that timeline, it’s gonna take some time for the agency to operationalize these rules,” predicting that a window for applications for social equity licenses wouldn’t open until “late fall/early winter” but work was continuing “behind the scenes” to stand up the infrastructure “to make this program work.” She was grateful to licensing, and other divisions for their work revising “what we hope will be a successful, initial social equity program.”
    • On July 26th, WSLCB staff released a request for proposals (RFP, InfoSet) to identify a third-party to serve as a “social equity contractor” to apply the scoring rubric to received applications in order to prioritize access to available retail licenses.
      • The RFP timeline aimed for a successful bidder to start the contract on September 30th. The RFP contract included the stipulation that “Time is of the essence in the performance of Contractor’s obligations under this Contract. Contractor agrees that no other work in its organization will be permitted to interfere with its timely performance of the Services required under this Contract.” Moreover, those bidding for the contract “shall provide a time frame for providing the ranked list from the time the Contractor receives the list of potential applicants from the WSLCB in their bids.”
    • Postman credited both Hoffman and licensing staff, acknowledging that agency leaders were awaiting “data on what” specific regions were DIAs which would help them finalize “when we could start accepting applications” (audio - 1m, WSLCB video, TVW video). 
    • Board Member Ollie Garrentt and Hoffman were complimentary of each other’s contribution to the social equity effort at the agency (audio - 1m, WSLCB video, TVW video). 
      • Garrett was the WSLCB appointee to the ​​Washington State Legislative Task Force on Social Equity in Cannabis (WA SECTF)
    • Board Member Jim Vollendroff was complimentary as well, noting he’d joined “late in the process” and found the comparison of the rule changes especially helpful (audio - 1m, WSLCB video, TVW video).
  • Later in the caucus, Director Rick Garza lauded “all the work” done by officials, and called out the memorandum as being “the kind of detailed work that we need in this agency," as it helped staff and public alike “understand the changes that we’re proposing” (audio - 1m, WSLCB video, TVW video).

• Director Rick Garza offered several brief updates covering agency request legislation for 2023, federal cannabis banking reform, and assistance offered to cannabis regulators in Guam.
  • Agency Request Legislation (audio - 1m, WSLCB video, TVW video) 
    • Garza stated that the following day he’d be distributing “three specific proposals” for request bills with stakeholders in the “typical process” that provided “several weeks” for feedback.
  • SAFE Banking Act (audio - <1m, WSLCB video, TVW video). 
    • According to Garza, Director of Education and Enforcement Chandra Brady had briefed members of congress the week before on the act at an event organized by the U.S. Cannabis Council (USCC). He relayed that her remarks urging action on the bill “went very well.”
      • The Governor's Office published a newsletter late on July 29th which pointed out that "State officials continue urging Congress to pass SAFE Banking Act," embedded a video from USCC, and noted: 
        • “On July 27…Brady joined federal legislators for a briefing organized by the U.S. Cannabis Council. At the briefing, they unveiled new TV ads highlighting the urgency of congressional action on the SAFE Banking Act. The act would give cannabis retailers more options to accept credit card and debit transactions with customers.”
      • The USCC Twitter account quoted Brady as saying that “We believe that the root cause of these violent robberies is that these stores have to use cash.”
      • USCC was founded in February 2021, and counted established cannabis industry and advocacy organizations as members, which helped the group attract engagement with elected officials and regulators. USCC leaders brand themselves as "the voice of America's regulated cannabis industry."
    • The bill language was amended into the National Defense Authorization Act for fiscal year 2023 and passed by the U.S. House of Representatives on July 14th. At time of publication, the U.S. Senate hadn’t passed the language, though Washington Senator Patty Murray stood in support of its inclusion. 
  • Guam (audio - 2m, WSLCB video, TVW video). 
    • Garza commented that Chief Financial Officer (CFO) Jim Morgan “spent some time with Guam,” a member territory of the Cannabis Regulators Association (CANNRA), “in the process of putting their program together for cannabis.” He said there were some “state banks that are interested in” the industry, and that Morgan and Washington State Department of Financial Institutions (WA DFI) Director of Banks Roberta Hollinshead had been helping both their banking and cannabis regulators. Garza bragged that Washington was the “one state in the country that has gotten this figured out,” noting that all excise taxes had been submitted electronically for “three months.”
    • The Guam Department of Revenue and Taxation had been reported to be opening a cannabis licensing window for the territory on August 29th. Guam officials passed legislation to legalize cannabis in 2019.