WSLCB - Board Caucus
(November 15, 2022)

Here are some observations from the Tuesday November 15th Washington State Liquor and Cannabis Board (WSLCB) Board Caucus.

My top 5 takeaways:

• Five panelists from around the cannabis industry joined the board for a final conversation reflecting on the decade since voters approved the adult use market.
  • Board Chair David Postman greeted attendees, mentioning that the conversation would be the last of three “marking the 10th anniversary of the passage of Initiative 502 which legalized recreational use of cannabis in our state. The first one we had was with the original author...Allison Holcomb. Then, last week we heard from two researchers with some interesting data. And today we have a panel of industry representatives that I'm really excited to hear from” (audio - 1m, WSLCB video, TVW video).
  • Policy and Rules Manager Kathy Hoffman welcomed panelists, asking for introductions and “a very brief…synopsis of sort of what your thoughts are this morning about being in the cannabis business in Washington state” (audio - 1m, WSLCB video, TVW video).
  • Ryan Sevigny, High Tide Ranch Owner, Landrace Brands President, Adjunct Board Member for the Cannabis Alliance, and Board Member of the Washington Sun and Craft Growers Association (WSCA, audio - 2m, WSLCB video, TVW video)
    • Having transitioned from the alcohol sector and E & J Gallo Winery in 2016, Sevigny looked at the cannabis industry as “a tough place to be a farmer, particularly if you are small and would consider yourself craft.” He felt there were “mounting hurdles” for businesses trying to act in a “viable, sustainable industry.” He wanted licensees and trade organizations to unify and “find common sense ways where we can help the greater good of everybody” in the cannabis sector. Sevigny felt consumers and patients had been “getting left out a little bit in this conversation, and I think that's an important cog” of policymaking. Another concern was ensuring “the place in this industry for multiple types of business models,” which he felt Holcomb had articulated well.
  • Jim Makoso, Flowe Tech CEO, Lucid Lab Group Director, and Washington State Legislative Task Force on Social Equity in Cannabis (WA SECTF) Co-Chair (audio - 2m, WSLCB video, TVW video)
    • Makoso noted his role on the Scientific Advisory Committee of the National Cannabis Industries Association (NCIA) to indicate “I'm really coming at this with multiple hats,” but he was going to focus on being “a community member who has participated in the industry since its inception.” Looking at nearly a decade of a regulated market, he suggested “we can garner lots of really positive things that our state has done” along with the benefit of hindsight. “Some of the social equity components…some of your proposed legislations for this next session” as well as “how research is becoming a bigger component of…the tax structure and the reinvestment back into the industry,” were topics he was interested in discussing.
  • Jessica Tonani, Verda Bio CEO and member of the Washington State Hemp in Food Task Force (WA Hemp in Food Task Force, audio - 3m, WSLCB video, TVW video)
    • Describing her background as a patient, Tonani echoed Holcomb’s sentiment that the intent of I-502 included “mak[ing] it so medical patients weren't afraid…that was accomplished for a lot of us.” She’d lived as someone “probably more scared of getting arrested for having cannabis than I was dying” because “you lose your house, you lose your insurance, you lose everything.”
    • Tonani had wanted to perform research but found it difficult to frame that through an application for a cannabis producer license. She “met with [then-Board Chair] Sharon Foster and she said…’the reason you can't figure out how to fill it out is because it's against the law to do research.’” Tonani went on to lobby for cannabis research legislation that was passed into law in 2015, “and we got a research license.” 
    • Tonani pointed out that “in 10 years, we went from medical patients being afraid that they were going to lose their house because their neighbors would call the police on them to soccer moms now serving cannabis at cocktail parties.” She believed there was a lot more to accomplish—particularly for patients—and “on a federal level things are going to move equally fast, and we as a state have to figure out…are we going to be an import state; are we going to be an export state? How do we look and address this?”
  • Windy Anderson, Suquamish Tribal Secretary and General Manager of Suquamish Evergreen Corporation (audio - 1m, WSLCB video, TVW video).
    • Anderson said she was the manager of “the second retail store to be opened” on tribal land, and relayed her business background to the board. “We've been really committed to working alongside the LCB on things that we do to make sure that we as a tribe, and as a compact, aren't stepping outside of the state’s guidelines,” she stated. Similar to other cannabis businesses, Anderson wanted to see federal banking reforms, “some kind of SAFE Banking Act passed.”
      • The Suquamish government entered into the first cannabis compact with Washington State in 2015. The Suquamish Evergreen Corporation was established as a subsidiary of the tribally-owned Port Madison Enterprises “and consists of two separate cannabis businesses, Tokem, a wholesale processor, and Agate Dreams, a retailer.”
      • Elected to the tribal council in March 2021, Anderson had previously shared her views on cannabis business both on the Agate Dreams website and in a 2020 story in Native Business.
      • Washington elected officials and regulators advocated for passage of SAFE Banking Act language in early 2022.
  • Shannon Vetto, Evergreen Market CEO and Washington CannaBusiness Association (WACA) Trustee (audio - 2m, WSLCB video, TVW video).
    • Vetto told the board “my background is on the capital markets and investment side” but she’d worked in both medical and adult use cannabis enterprises. Contemplating the issues her business and its five stores in Washington faced, Vetto stated there were “normal headwinds in our Washington State market right now” including oversupply and “a lack of capital available to us.” The situation might improve with passage of banking reforms, but “we just don't have the normal set of business tools available to deal with these issues.” She argued that Washington was “hamstrung more than some other states” due to residency restrictions on cannabis license ownership “as well as due to some of our [licensing] cap requirements.” Vetto wanted to support “craft growers” and also consider what was needed “in the face of…federal legalization” but pointed out “nationalization” of cannabis had already begun.

• Questions for panelists began with the “nationalization” of the cannabis market before digging into out of state ownership, medical patient access, and social equity.
  • Picking up on Vetto’s use of the phrase, Postman asked that she “tell me more about what you mean by nationalization.” Vetto explained that while “interstate sales of cannabis” wasn’t legal, “there is interstate commerce going on right now. That's the nationalization I'm talking about” where “national MSOs [multi-state operators] who are operating at a scale much larger than any individual state. They’re in all states; they’re even in our state…despite the limits.” Moreover, “you're seeing nationalization on all the service levels” like technology or financial tools. Postman understood, considering the cannabis sector to be at “a juncture” in its development (audio - 1m, WSLCB video, TVW video).
  • Postman then raised “the question of outside ownership, investment in Washington state. Is that inevitable, is that helpful, are there fears around that?” (audio - 9m, WSLCB video, TVW video)
    • Out of state ownership was prohibited in law by I-502, and there had been legislative attempts to change residency requirements.
    • Tonani observed that “if you look at most of our ag[riculture] industries in the state of Washington, a lot of them are still owned by family businesses, but at some point those family businesses had access to capital.” She knew that agriculture businesses could get “loans for seeds” or farming equipment, “things that our farmers don't have access to, and I worry about how we prepare for scale if federal legalization occurs” without more options for capital. 
    • Makoso understood Tonani’s perspective, feeling even with potential success of the federal SAFE Banking Act, “in the short term implementation is going to take some time…that doesn't mean that the average small business is gonna have access to capital” compared to bigger companies that were “safe bets” for out of state investors. True party of interest (TPI) reform would be needed to get smaller businesses access to capital, he argued, and agency leaders could find documentation validating that “mid to small size businesses in our state, lots of them are going away.” Makoso’s view was that out of state capital was the best option for many of these businesses.
    • As Makoso was WA SECTF Co-Chair, Postman followed up to ask how changes to ownership and investment rules could impact social equity, “because I've heard both” supportive and critical comments. Makoso said “you'll hear it go back and forth” because there was both a need for cannabis businesses to raise money to expand, but also fears “larger companies will be able to come in and kind of do what these larger companies have done in other states, which is take a big foothold, have a huge amount of capital, and…push out products at lower margins.” However, his judgment was that “the risk of that occurring is outweighed by the access to capital for the small and mid size business” because all businesses faced competition and “operators that don't necessarily know how to run a business, in any industry, are going to be a part of the percentage of folks that don't make it and we can't control that.” Social equity licensing in Washington was trying to “mitigate that” through technical assistance grants and “some other components like what we propose in the task force…certain grants and loan facilities.” But Makoso thought the cannabis sector could only “thrive” with more access to capital.
      • WSLCB staff hosted a listen and learn session dedicated to TPI in May 2020.
    • Vetto was similarly in favor of allowing outside capital, stating that concerns with large out of state brands was a non-issue because “they’re already here…they're coming in with licenses with direct holders….and I think we should level the playing field…to allow everyone that opportunity, not just the companies that have the lawyers that can figure out how to get through it.” She noted outside financiers could loan companies money, but not hold a stake in those companies. But, “with the headwinds we're dealing with from an economic perspective,” business loans for cannabis could be “18 to 22%,” which she found far above “a normal business loan.” Vetto described cannabis licensees as being “in a fight, in an economic challenge, and we have one or potentially both arms tied behind our back.”
    • Sevigny spoke up to “double down” on Makoso’s remarks, but felt out of state ownership and capital “really will help the medium to large in size investors the most.” Smaller licensees would benefit from “other avenues to explore” including “access to the market through different pathways,” he said, highlighting Allison Holcomb’s statements to the board preferring owner-operators over investor-operators.
      • Postman asked Sevigny whether other avenues meant direct sale rights for producers. He replied that vertical integration was one option (“which isn't always popular amongst my group”) but he preferred having craft cannabis production and “craft retail” defined and protected by regulators. When he worked in the alcohol sector, Sevigny relayed that he’d run “a couple states up here” and they’d unloaded a subsidiary’s wine tasting rooms because “it was outside of our core competency.”
  • Director Rick Garza followed up on out of state ownership, pointing out how “very divided, with respect to out of state ownership,” the cannabis industry had been during prior legislative attempts to change that. Without most trade associations coalescing around a bill, he expected 2023 would be more of the same. Highlighting how there might be “more than just one approach,” Garza mentioned 2020 request legislation to allow tier 1 producers to sell directly to medical cannabis patients which wasn’t passed by the Washington State House Commerce and Gaming Committee (WA House COG). He seconded Vetto’s mention of MSOs, adding “I don't think a lot of people understand that many of you have businesses in other states.” Garza repeated a call for unity on allowing some vertical integration for “the very small growers” as a way to get support for out of state capital (audio - 8m, WSLCB video, TVW video).
    • Sevigny answered that direct sales limited to cannabis patients felt like “a half measure” due to the fact that “our registered patient list is pretty minute compared to, say, Colorado.” He wasn’t certain this would be perceived as “equal to the other side of the coin, which is…access to capital for larger and mid-sized, more investable companies.”
    • Tonani added that as a patient she’d found joining the database burdensome, stating “if you're a medical patient, you'll spend 20 hours trying to get into the registry.” She said few patients made the effort to register for the “10%” exemption from sales and use tax. Tonani preferred a “co-op setting” where patients could get medical advice, even though “that's a fine line for the state but we have to acknowledge that patients want that information.” Tonani argued for a “revamp” of the medical program whereas “trying to build on top of a medical system right now [offers] minuscule revenue” simply “based on the fact that the registry itself is so broken.”
      • Patients with authorizations to use cannabis can only be entered into the database by certified consultants at licensed retailers with medical endorsements that obligate them to comply with additional requirements. However, finding them had become increasingly difficult since the retail market was merged with the unlicensed dispensary market by a 2015 law.
      • Counts of endorsed retail locations vary. While a January 2022 list from the Washington State Department of Health (DOH) specified 219 locations, a November 16th list from WSLCB showed 274 licensed retailers with a medical endorsement. Meanwhile, a 2021 review of medical cannabis tax preferences found only 205 locations were filing them, suggesting some locations were not selling to patients, and therefore might not be registering them.
      • Agency leaders shared their uncertainty about the actual number of compliant endorsed retailers on November 9th.
    • Vetto attributed retail hesitation around direct sales by producers as “about the gamesmanship, and…the number of unused licenses...with unintended consequences.” She hoped that some definition of craft cannabis could be settled upon so craft growers would get more support from within the industry, which she indicated should “agree more on the how” as a way to advance the industry. “I've seen more alignment in the last six months on that point by all industry and industry associations” and “at session you might find a lot more alignment there,” Vetto added. Sevigny similarly saw the “industry is a lot more aligned on that.”
    • Postman was receptive to having officials talk about what constituted craft cannabis.
  • Board Member Ollie Garrett turned the discussion to the social equity program. Noting the financial support for equity licensees, she asked whether panelists would still support their suggestions for allowing out of state ownership knowing that “any new retail license is going to be under that program” (audio - 7m, WSLCB video, TVW video).
    • Eschewing the issue of what was best for equity applicants, Tonani suggested an entity like the U.S. Small Business Administration (US SBA) was “desperately missing for all businesses in this space.” She mentioned that women and minority owned businesses often received support through SBA. As “a woman owned small business, we don't have access to this small business resources that I have in other industries, and that hurts.”
    • Makoso talked about how financial supports that were part of the social equity program came from cannabis tax revenue and “what we're describing here is two different components”: general small business investment as well as other support “catered to social equity applicants.” He saw no reason capital investment programs for non-equity licensees couldn’t also be funded by cannabis revenue, noting “if we look historically at capital coming back into the industry from our revenue, that's been virtually non-existent.” Garrett called the idea “excellent” and “needed.” Makoso encouraged anyone interested in the topic to look out for a December WA SECTF report with recommendations to legislators including “increasing [loan] allotment for social equity applicants, including a grant and loan program” that would need to be enacted by lawmakers.
      • WA House COG members scheduled a work session for Wednesday November 30th to hear an update from the task force.

• After asking about the Suquamish Tribe’s experience with legal cannabis, the discussion moved to hurdles for licensed producers and industry impressions of public health research.
  • Postman asked Anderson directly about her government’s experience as an early adopter of a cannabis compact with the state. He was particularly curious “how Suquamish members view the business” and whether her perspective was similar to “what you're hearing in other parts of the industry off of tribal lands” (audio - 3m, WSLCB video, TVW video).
    • She explained that reservation land was federal land, so when Washington State voters passed I-502 in 2012, “it wasn't legalized on our reservation.” Members of her nation were still prohibited from growing, selling, or consuming cannabis by “my tribal police along with federal police.” The Suquamish government had to decriminalize, something that was divisive among members, but leaders chose to have cannabis tax revenue go “back into our essential services” like law enforcement, tribal courts, “education, and prevention” programs. Anderson said the business had been profitable, and was useful “to make it through post-[coronavirus] pandemic retail” challenges.
      • In 2015, attorneys with the Affiliated Tribes of Northwest Indians outlined processes and considerations tribal governments faced when pursuing cannabis reforms. 
    • Postman then inquired about any future plans the Suquamish tribal government had to expand their cannabis businesses. Anderson thought where “we've really htoned in is retail, and really generating that tax revenue for our tribal government.” In addition, they partnered “with other tribes, we have a really good relationship with the Puyallup Tribe.”
      • Read the cannabis compact with the Puyallup Tribe and its two amendments from 2018.
  • Next, Postman asked Sevigny “what is it like today to grow versus when you started” (audio - 12m, WSLCB video, TVW video).
    • Sevigny recognized that “with experience and time you drive efficiencies,” but he found regulatory changes like “the canopy redefinition” impacted his business operations. Other obstacles included “tagging plants” and “weighing wet weights” which was done solely for regulators. During WSLCB staff visits to his business, “no one's ever looking at said tags, and it's just kind of an onerous labor expense, cost expense, environmental expense with all these plastic tags.” He advised moving away from these practices which entailed creation of “non-usable” information for his company.
      • Find out more from an October 4th World Café session on canopy facilitated by WSLCB staff, and the November 29th follow up session.
    • Tonani’s business grew at a smaller scale for research, but each plant tag cost them 33 cents. “It doesn't affect… a cost of good,” she acknowledged, “but we're talking tight margins in this industry and tagging is expensive.” Sevigny agreed and tags occasionally needed replacement if they were faded or damaged, pointing out that since his production space was outdoors “our plants are in the ground and so they don't move.” He nonetheless appreciated the pressure WSLCB staff faced since cannabis “isn't federally legal, and that we're trying to make sure diversion…and [youth access] is prevented as much as possible.”
    • “I think canopy might be somewhat of a segue to interstate commerce,” said Sevigny, because perception of the importance of controlling production would change in a nationally legal cannabis market. Competing with other states was “gonna drive disparity,” he argued, to which Tonani responded Washington state had “water which a lot of our West Coast friends don't have, and we have a really good climate to grow this plant in” as well as “cheap energy.” These factors positioned Washington as “a potentially really good export state on a national level,” she argued, provided officials could “allow the farmers that want to grow, to grow, and scale” following federal legalization.
    • Makoso wondered about “a trial or a pilot program where we look at at least even entertaining the framework” for an interstate compact for cannabis trade in the event of federal reforms. Postman was aware of the 2019 Oregon legislation preparing for interstate cannabis commerce contingent upon a change in the federal status of cannabis, and a similar 2022 Californian law, but remained wary given the “delicate relationship with the federal government.” He credited President Joe Biden’s “moves that certainly are more positive than we've seen in the past,” but they had “not gotten the total green light or embrace of what we do.” Postman liked the concept of “doing a war game about it. We should sit down with California and Oregon, both who have these laws on the books already, and say ‘what would we do if if they acted tomorrow?’” Garza announced that he was meeting with Oregon Liquor and Cannabis Commission (OLCC) representatives the following week “to figure out: should we be ready?”
      • Alliance for Sensible Markets, an Oregon trade group, advocated for the proposal.
    • Returning to the idea of a “SBA-type facility for these businesses” that could allow small producers “fairly quick access to capital to buy the farm next to them or expand” in a “first mover market,” this struck Postman as “perhaps more valuable than a lot of what we see in these trigger bills about…approval to enter into interstate compacts.” However federal legalization was approached, it was certain to “flip… the cards on” a lot of policies WSLCB had in place.
  • Thinking about the public health research presentation the board had gotten in the previous caucus, Postman was optimistic that “people are choosing our stores” and “choosing to work within the system more so than in these other states.” He was curious to hear the panel speak to “where we stand compared to other states,” feeling that people choosing the regulated market “couldn't happen if we all weren't working well together, and both doing what we should be doing.” Postman added an acknowledgement that Washington had the highest tax on cannabis of any legal state (audio - 7m, WSLCB video, TVW video).
    • Tonani accused the State of failing “on the medical side,” but did believe “most businesses are trying to do the right thing and I think consumers see that.”
    • Vetto lauded the talent of those working in the Washington cannabis industry, but felt they were “losing ground.” Prices for cannabis flower were too low and “contributing at the same time to the economic headwinds we're seeing.” She then mentioned retail security, “that wave is starting again, it's starting with putting cars through fronts of stores.” She thanked WSLCB for their safety support and hoped they would stay available since “this was the same time last year where we got that spree starting.”
      • The Washington State Organized Retail Crime Task Force (WA ORC Task Force) was scheduled to meet on Wednesday November 30th and the Washington State House Consumer Protection and Business Committee (WA House CPB) had a work session for "Organized Retail Theft Updates" set for Thursday December 1st.
    • Makoso saw the agency as having done a lot right but with eight years of market data it was possible to “see where there's a need for change,” especially when it came to the industry being “overtaxed.” Any decrease in tax rates would help growers and producers, he argued. He felt optimistic that “this conversation is proof that the agency’s continuing to look for communities to help improve our industry.” Postman noted he was relieved to have heard from researchers that “some of the really bad things that they predicted would happen with legalization, didn't.” This was important as he still encountered people “in our authorizing environment who don't…like legal cannabis, and so we have to keep proving that until the federal government moves.”
  • Board Member Jim Vollendroff remarked that he continued “soaking in knowledge” from industry representatives. Further information on the medical cannabis side was something “I'm super interested in learning more about,” he told the group, as well as craft cannabis. He asked that people reach out to him directly “if you want to educate me about a particular area.” Vollendroff’s ethos was that regulators could only succeed if the industry they oversaw was able to be successful and “thrive” (audio - 2m, WSLCB video, TVW video).
  • Postman’s final question was on distinguishing when a cannabis licensee might be considered ‘craft,’ asking “what is the understanding and the appeal within the industry itself today?” (audio - 3m, WSLCB video, TVW video)
    • Sevigny considered producers or processors to be craft based on the practices they used to grow or process cannabis, while stores could be considered craft based on “what percentage of the business that retailer does is craft.” Defining craft production was a top priority for him, because he knew most retailers were “driving for better prices to beat their competition,” and many producers and processors were motivated “to make payroll” or to “grab market share” rather than commit to craft practices.

• Board Chair David Postman deemed the session to be informative and he “hoped we can keep talking about some of these things” (audio - 2m, WSLCB video, TVW video).
  • He said the conversation had touched on “live issues” agency staff would be following up on with panelists, but they were welcome to reach out to board members directly. “I'm sure we will see you again sometime soon,” he added, “I think we need to find more to do…it's a good use of the caucus time.”
  • MJBizDaily also covered the meeting, summarizing the industry as facing “headwinds” and focused on:
    • “A lack of access to capital. The state’s residency requirements hinder outside investment.
    • Low wholesale prices. Craft and small cultivators confront an oversupplied flower market.
    • Limited social equity opportunities for minority cannabis entrepreneurs.”

• Board Member Ollie Garrett had thoughts on how the inactive Cannabis Advisory Council (CAC) might be reconvened to contribute to board policymaking.
  • The group last met in April 2021 to introduce themselves to Postman, who’d just been appointed to the board, and discuss some of their issue priorities.
  • Garrett claimed that since “the majority of the folks that will be part of the advisory committee was all part of the social equity piece” the group hadn’t met since WA SECTF began meeting in October 2020. She’d been in conversation about reforming CAC and “what it should look like,” including adapting a charter which had been used for previous Alcohol and Tribal Advisory bodies (audio - 2m, WSLCB video, TVW video).
    • Garrett felt the conversation they’d just had was similar to “what happens at the cannabis advisory committee level.” She asked that Tonani join CAC, as “part of the committee is to have someone representing the medical industry.” Garrett welcomed Sevigny or another Cannabis Alliance representative, and suggested Anderson consider becoming involved so there could be “someone representing the tribe.”
      • At the April 2021 meeting, Lukas Barfield was present as Patient Representative. The owner of Quality West Cannabis (QWC), Barfield also served on the Washington State Hemp in Food Task Force (WA Hemp in Food Task Force).
      • Caitlein Ryan, Board President of the Cannabis Alliance, was the last representative of that group.
      • Robin Sigo, a former Suquamish Tribal Council Treasurer and Executive Director of the Suquamish Foundation, had not attended the last six CAC events after sending Ryan Ramirez in her place for the May 2018 meeting. Sigo participated in an April 2019 TAC meeting.
    • Garrett promised to be “kicking off the cannabis advisory group again…in the coming days” to continue conversations like they’d just heard. Vetto offered to join as well, prompting Garrett to state her commitment to “getting the right group to have these type of dialogues.”
  • Expounding on the topic, Postman mentioned the other advisory groups at WSLCB had typically been chaired by a single board member, though the other members were encouraged to attend any advisory group meeting (audio - 7m, WSLCB video, TVW video).
    • Postman wanted to schedule a discussion of how to restart the groups in the near future, but thought it might not be before 2023.
    • Vollendroff asked how often the advisory bodies met, with Garrett stating it had been quarterly. Vollendroff advised proactively scheduling the meetings for 2023 to “encourage that type of participation” regularly.
    • For the Alcohol Advisory Council, Garza indicated the board and staff had met with them ahead of each legislative session, “so we can share what we're working on and they'll share with us.”
    • Board members considered having Postman chair the tribal council, Vollendroff chair the alcohol group, while Garrett stayed head of CAC.
      • In November 2021, board members perceived minimal value in a tribal advisory body, preferring direct conversations with tribal governments.
    • Garrett mentioned that the charter which had been expanded for cannabis proved less effective in her opinion “because alcohol has been around for years and it was a lot of different organizations that's already…fit into what the charter was saying.” By contrast, she said “there were only like, two or three organizations, WACA, Cannabis Alliance, others… with cannabis being new it wasn't that.”
    • Postman expected the agency could reach out to people participating in prior WSLCB events and find a willing candidate pool since “it's not a huge time commitment.”