WSLCB - Listen and Learn Forum - Incremental Expansion of Tier 1 Canopy
(June 30, 2020)

Tuesday June 30, 2020 1:00 pm Observed

The Washington State Liquor and Cannabis Board (WSLCB) was considering revisions to WAC 314-55-075 regarding marijuana producer licenses that would incrementally increase the plant canopy square footage currently allowed for licensed Tier 1 producers.

The Washington State Liquor and Cannabis Board (WSLCB) is hosting two Listen and Learn forums about the current rules regarding marijuana producer licenses, specifically the consideration of revisions and new rule sections that would incrementally expand the plant canopy square footage allowed for licensed Tier 1 producers. This is the second of two planned sessions. Session #1 will cover WAC 314-55-075 Sections 1 through 5. Session #2 will focus on Sections 6 through 11.The full text of WAC 314-55-075 is provided here.

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As you may recall, the Board began to consider revisions to existing producer license rules by initiating a formal rule inquiry on December 18, 2019. The Preproposal Statement of Inquiry filed by the Liquor and Cannabis Board may be found here.

The Board has received requests from medical marijuana patients and segments of the industry to increase the availability of Department of Health (DOH) compliant product in licensed retail stores. The Board has also learned that smaller producers are concerned about business sustainability based on canopy space restrictions. Recognizing this, the Board would like to explore the ways that it can support Tier 1 producer business viability. Revisions considered may also include clarifying and technical updates to existing rule within the scope of this topic.

An agenda is attached to help you prepare. Please come prepared to offer feedback and suggestions regarding this rule section.

If you wish to join us virtually, we’d like to offer the following reminders: 

* Virtual participation will be structured to allow one speaker at a time though the hand-raising feature on WebEx.

* If you experience difficulty with audio or visual elements of virtual participation, please be patient.

Please remember that we are still in the developmental phase of rulemaking, and there are not yet any proposed or final rules amendments. To help you prepare for this listen/learn/contribute forum, please review the guidance document prepared for this and future forums.

Questions? Contact Casey Schaufler at casey.schaufler@lcb.wa.gov

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Observations

In the second online forum covering potential changes to existing producer rules, participants discussed canopy allotments as well as adulteration of cannabis, quality control, and labeling.

Here are some observations from the Tuesday June 30th Washington State Liquor and Cannabis Board (WSLCB) Listen and Learn Forum on the Incremental Expansion of Tier 1 Canopy rulemaking project.

My top 3 takeaways:

  • Agency staff welcomed participants and observers before reviewing the State rulemaking process and providing background on the rulemaking project.
    • The forum was the second looking at canopy expansion for tier 1 producers---and more broadly at cannabis producer privileges in WAC 314-55-075---as part of a CR-101 adopted in December 2019 to consider possible rule changes. The first forum focused on sections (1) through (5) of the current rules, while the second covered sections (6) through (11).
      • See Cannabis Observer’s coverage of the rulemaking project’s initial listen and learn forum on June 23rd for background.
    • Policy and Rules Coordinator Casey Schaufler led the virtual gathering and introduced WSLCB staff before reviewing the session format, ground rules, and expectations of participants. He said that the purpose of the session was to “explore ways that [the WSLCB] can support tier 1 producer business viability. Revisions considered may also include clarifying and technical updates to existing rule within the scope of this topic” (audio - 9m). Schaufler later noted that staff had prepared materials about “what we could and couldn’t do in rule versus statute” and took several minutes to explain the WSLCB rulemaking process (audio - 5m).
    • While participants could introduce themselves and communicate with agency staff using the WebEx chat function, attendees once again weren’t able to perceive or address one another directly. Cannabis Observer identified those who spoke during the event and some who shared written comments (audio - 3m).
    • WSLCB staff hosting the event:
      • Kathy Hoffman, Policy and Rules Manager
      • Casey Schaufler, Policy and Rules Coordinator
      • Audrey Vasek, Policy and Rules Coordinator
    • Participants and observers:
  • Participants talked about the second section of producer rules covering canopy allotments, adulteration of cannabis, quality control, and labeling.
    • WAC 314-55-075(6) - Canopy (audio - <1m).
      • Shawn DeNae Wagenseller (audio - 3m). Wagenseller started off by saying she didn’t “like that the [canopy] limits are based on tiers” as such a system “puts demands on businesses unnecessarily.” Instead, she advocated for “a merit-based system for expansion and acquisition of licenses,” as it would “solve many current issues, ones that tier 1s have brought up.” In her written comments, Wagenseller described a system which would create a “common limit for all,” award more privileges to “those creating tax revenue,” “provides for market demand to guide phased in expansion,” expands the number of production licenses able to be held by a true party of interest (TPI) to five, allows growers to choose to produce less than their canopy, and “pull the canopy on inactive licenses.”
      • Shirley Grandell (audio - 2m). Grandell liked the idea of a merit-based system for awarding canopy and called for all tier 1 licenses to be “replaced by tier 2s” as it was too hard overall for Washington’s smaller cannabis growers to compete. 
      • Drew Davis (audio - 2m). Davis suggested tier 1 licenses be expanded from 2,000 to 5,000 square feet or “doing away” with tier 1s by making them tier 2s “as long as there is canopy space available.”
      • Lukas Hunter (audio - 2m). Hunter was supportive of Davis’s proposal, calling it a “fantastic way to go about allowing tier 1s” to expand and still “flow with the current system.” Hunter, formerly the WSLCB Canopy Team Manager, indicated he was not aware of any definition of how canopy was measured in law, rule, or policy. Hunter suggested that a definition be added requiring canopy be measured “by the...dimensions of the physical cultivation area on the licensed premise.” Hunter also advised the agency to not count seedling and tissue culture space against a licensee’s canopy to support cannabis nurseries.
        • Cannabis Observer previously acquired Director’s Office Division Policy #550 (“Surveying Cannabis Canopy”) and #550A-1 (“Preparing and Conducting the Canopy Survey”), both dating from January 2018, which provided general guidance to Canopy Program Specialists.
        • According to the WSLCB’s year 2 canopy report created in early June, ‘“How do you measure plant canopy?” was the most common question encountered by staff across both years of the survey. This is obviously a crucial question, because how plant canopy is described in rule has implications for determining if a premise complies with tier limits.’
        • The report concludes, “Further describing canopy measurement with a list of best practices designed to support compliance through LCB clarifying guidance or an interpretive statement could be considered as a means to assist agency and industry stakeholders in navigating the complexities and nuances of plant canopy.”
      • Crystal Oliver (audio - 3m). Oliver suggested “It would be really nice if there was...an enforcement mechanism” for licensees who exceeded their canopy limit. She was also wary that increasing tier 1 canopy would help “speculators” reselling licenses while doing little for operators. “It would be nice if the LCB would take a more holistic approach to addressing viability of craft producers,” she said. Oliver also asked for a canopy increase for sungrowers as they “are unable to produce as much cannabis as their indoor, year-round counterparts.” She supported the idea of a nursery license for the production of immature plants and seeds.
      • Jeff Merryman (audio - 1m). Merryman expected the idea of rewarding those selling the most cannabis with more canopy would be problematic as, in the past, “a lot of stores were telling tier 1s that if they don’t like them they’re not going to buy from them, resulting in running them out of business.” He asked that the rules refer to “plant canopy” rather than “amount” and that the agency codify a straightforward length multiplied by width formula for determining canopy.
      • Joshua Rutherford (audio - 2m). Rutherford claimed judging an "active license or the productivity of a license based upon tax revenue is not within the spirit of I-502" which he asserted was to “provide access to Washington state residents.” Rutherford explained his business was focused on cannabis genetics so he didn’t generate “a whole lot of tax revenue at this point.”
      • Vicki Eneas (audio - 4m). A tier 1 sungrower, Eneas supported canopy expansion as her business could only grow once a year. At first she’d thought that 2,000 square feet would be sufficient “but we’re finding out that you lose some of your crop, whether it be to weather or pests...we need something to make up for that.”
      • Frank Shade (audio - 2m). Another tier 1 grower, Shade pointed to comments from 2019 by Director Rick Garza on the agency’s intention to help small growers and medical cannabis patients, which led Shade to be against “a merit-type system” for expansion. He echoed Davis’s comments, calling his recommendations “pretty much right on.” Shade called for additional privileges for small producers such as “direct access to medical [patient] sales.” He estimated a need for “at least 5,000” square feet of canopy in order to “be viable in this marketplace.”
      • Jim MacRae (audio - 6m). MacRae provided several comments on sections (6), (7), and (8) pertaining to “canopy adjustments.”
        • MacRae said it was important that WSLCB “make sure everything is defined” including the “maximum square footage” cited in (7)(a). He claimed the agency had already licensed “north of 10 million” square feet of canopy, “more than has been deemed, by [BOTEC Analysis] a third party that was put in place to look at this, as sufficient for the needs of the market.”
          • The 2018 canopy survey outdoor adjusted utilization figure of 5,810,743 square feet representing 52% canopy utilization would indicate there was 11,174,505 square feet of licensed canopy in Washington state at that time.
        • MacRae argued that “tier 1 was put in place for one reason and that was to enable a pathway through which small operators” had a “path to viability within this marketplace.” As a result, any “fixed cost rule” in the industry would “differentially impact those who are constrained in their revenue” due to the canopy rules.
        • However, he was confident that data indicated some tier 1s were “surviving, if not thriving, so, it’s not impossible.” MacRae thought anyone who had requested or acquired a tier 1 business was being “a little disingenuous” to claim they were unaware that their business wouldn’t be able to “compete on cost of production with a tier 3.”
        • Instead, MacRae advised that existing restrictions on canopy needed to first be enforced before changes as “it does not appear to be the case that there has been much, if any, serious enforcement against the rules.”
      • Ryan Lee (audio - 2m). Lee shared many of the previously expressed sentiments and called for clarity and consistency of terms. He was open to expanding canopy for all licenses, including a suggested “tier 3+” designation beyond the 30,000 square feet canopy limit for tier 3 licenses.
      • Mark Ambler (audio - 4m). Ambler said that the canopy report by the WSLCB indicated outdoor adjusted canopy utilization decreased from 6.2 million square feet to 5.8 million. He said the report indicated tier 1s used canopy most efficiently and were “the only tier that’s increasing, we went from 41% to 44% [average canopy utilization] in 2018” whereas other tiers declined. Ambler reasoned that increasing small producer canopy to 5,000 square feet would do the most to move a licensee with a family of four “above poverty.”
      • Gary Green (audio - 3m). An indoor tier 1 producer/processor in southwest Washington, Green told the group he’d found a sustainable business model through “sea of green and a couple other different growing techniques.” He was opposed to eliminating tier 1 licenses, believing that there was “a very valid place in this market for tier 1s” for specific products and “different levels of customer service interactions” potentially leveraging former medical cannabis dispensary expertise. Green didn’t think tier 2s and 3s needed more canopy space.
      • Bethany Rondeaux (audio - 3m). Rondeaux prefaced that she’d had significant experience as a medical dispensary owner prior to recreational cannabis legalization. She had recognized the potential difficulty in succeeding with a tier 1 license, and didn’t “understand why people aren’t utilizing the option of buying licenses” as her company had “when we needed additional canopy.” Rondeaux was unsure it was WSLCB’s role to “make businesses viable or not.” She pointed out that more canopy could lead to more cannabis on the market, thus depressing prices overall.
    • WAC 314-55-075(7) - Reducing Licensee Canopy (audio - 3m).
      • Hoffman and Schaufler noted there were “statutory limitations” to modifying this section due to RCW 69.50.345, which required that “any reconsideration of the limits on the amount of square feet permitted to be in production to meet the medical needs of qualifying patients must consider information contained in the medical marijuana authorization database established in RCW 69.51A.230.”
      • Shawn DeNae Wagenseller (audio - 2m). Wagenseller asked for another rulemaking project to be started covering WAC 314-55-095 on cannabis servings and transaction limits for medical patients. She suggested that the agency "should be able to reduce square footage for those that are not selling into the system” and that such businesses should switch to a research license “or their canopy is reduced until they’re proven to sell at least 80% of what they produce.” Wagenseller advocated for “strong ways to reduce canopy and then follow through with those.”
      • Jim MacRae (audio - 2m). Calling attention to (7)(a), MacRae reiterated that "maximum square feet" wasn’t defined and that utilization of 50% of production space by growers in their first year hadn’t been enforced. He noted a definition for “active” businesses would be elusive since it would most likely be based upon data and that information in LEAF Data Systems was "highly questionable, questionable to the extent the LCB itself has stopped reporting that information on a monthly basis.” Similarly, “not all business models require employees” so employment data for licensees would not be a better data set. Taken together, MacRae asked the agency to “be very careful with any reductions."
      • Ryan Lee (audio - 1m).
      • Crystal Oliver (audio - 1m). Oliver indicated that (7)(a) and (8)(a) referenced an earlier version of rules which had “a statewide limit on canopy that changed several times over the years and was eventually stripped out” from the rules altogether. She asked that (7)(a) be removed unless the agency planned to “reinsert” a section “with a statewide cap on canopy.”
        • In the original rulemaking to implement I-502 filed in October 2013, section (7)(a) reads: “(a) If the amount of square feet of production of all licensees exceeds the maximum of two million square feet the board will reduce the allowed square footage by the same percentage.”
      • Jeff Merryman (audio - 1m).
      • Mark Ambler (audio - 1m).
      • Gary Green (audio - 2m). Green said that indoor tier 1s “could use a little bit more” canopy while outdoor growers “face more of an issue” due to seasonal limitations. He supported a merit-based process to increase canopy for tier 1 growers. However, WSLCB "shouldn't be forcing people to change their businesses to meet this definition of tiers" absent a better understanding of “which aspects of the market are being provided by which tiers.”
      • Joshua Rutherford (audio - 1m).
    • WAC 314-55-075(8) - Reducing All Licensees' Canopy (audio - <1m).
      • Shawn DeNae Wagenseller (audio - 1m). Wagenseller said it was more important for the rules “supporting expansion under certain criteria” as opposed to only empowering WSLCB to reduce canopy space.
      • Crystal Oliver (audio - 1m). Deeming it a “remnant” of past versions of the rule, Oliver said (8) should be struck altogether.
      • Mark Ambler (audio - 1m). Ambler wanted the agency to be able to “both increase as well as decrease” canopy as needed.
      • Ryan Lee (audio - 1m). Lee supported striking the language outright as it was “already kind of taken care of within other sections of the WAC such as penalties.” 
      • Gary Green (audio - 4m). Green said that he supported striking the language since the “market itself has weeded out a lot of the businesses” which couldn’t sustain themselves. His view was that many tier 1s “don’t care to expand” but did want more “access to the market” via limited vertical integration and services for medical cannabis patients.
      • Frank Shade (audio - 3m). Shade noted that “sadly it's true, sometimes pioneers get slaughtered,” adding, "I was told a lot of things that didn't pan out." He agreed that (7) and (8) should be removed but felt that tier 1s were "baited into this" discussion as its structure wasn’t conducive for sharing innovative ideas about making small growers viable.
      • Courtney Roberts (audio - 2m). Roberts, a tier 1 producer, said that if WSLCB was allowed to “reduce plant canopy I think that we should be able to also expand our plant canopy.” She said tier 1s that had demonstrated success and whose facilities had space to expand should be allowed to do so.
      • Vicki Eneas (audio - 1m).
      • Jeff Merryman (audio - <1m).
    • WAC 314-55-075(9) - Marijuana On Premise (audio - 2m).
      • Drew Davis (audio - 1m). Davis said that as "annual harvest" was not defined he was concerned producers would be limited to the amount of cannabis produced the prior year “because a lot of these grow [operations] they grow in size over time.” He advised defining the term based “on capability or capacity.”
      • Crystal Oliver (audio - 1m). Oliver questioned how “enforceable” the section was, particularly (a) and (b), saying they should be removed from the rule. Several attendees agreed with the change.
      • Mark Ambler (audio - 1m).
      • Jeff Merryman (audio - <1m).
      • Ryan Lee (audio - 1m).
      • Jim MacRae (audio - 2m). “Whether or not a rule has been enforced,” MacRae said, “should not factor, in my opinion, into whether or not it continues to be a rule. If that were to be the standard, you could probably eliminate half the rules that currently relate to cannabis.” He claimed the rule’s intent came from a time when there “was some fantasy" about dedicating enforcement resources to minimizing diversion into and out of the system, and called the rule one of the “key foundational elements of being able to play that little fantasy of actually regulating the market." Though it was not being enforced---and MacRae noted agency inspectors may not have or trust the needed data---he felt the rule should not be removed. He remarked that WSLCB’s Enforcement division should be consulted on possible changes “at a minimum.”
      • Gary Green (audio - 1m). 
      • Crystal Oliver - continued (audio - 1m). Oliver added a concern that should there ever be “a glut of product on the marketplace” producers deserved the right to store inventory while waiting for “more favorable” sales conditions.
    • WAC 314-55-075(10) - Adulteration of Usable Marijuana (audio - <1m).
      • Drew Davis (audio - 1m). Davis called attention to “an area that's a little gray where you could accidentally do something to marijuana that could also alter the color, appearance, weight, or smell of it in the slightest way.” He asked for wording saying “anything that’s primary purpose is to alter the color, appearance, weight, or smell would be disallowed. But not anything that could possibly do it.”
      • Jim MacRae (audio - 2m). MacRae suggested that most of these adulterations boiled down to usable cannabis’s “marketability.” For this reason, he found the absence of “flavor” in the list of factors notable particularly owing to “the sensitivity of flavor as it relates to a lot of the rulemaking earlier that was done about attractiveness to children.” If the rule persisted, MacRae advised the agency to consider including flavor, and that adulterations “whose intent” was to impact the plant’s color, appearance, weight, flavor, or smell be treated differently than substances which “incidentally” impacted those factors.
        • WSLCB staff last discussed the agency’s interim guidance on flavored cannabis vapor products and any relation to youth access during the Cannabis Industry Guidance Webinar on May 21st.
      • Drew Davis - continued (audio - 1m). Davis found MacRae’s suggested addition of flavor to be “problematic” as there were companies specializing in flavored products. If pursued, he predicted “serious opposition.”
      • Shawn DeNae Wagenseller (audio - 1m). Wagenseller struggled to think of how “somebody really could adulterate usable marijuana” and supported a rule saying cannabis flower couldn’t be adulterated as it should be "a natural, off the plant product."
    • WAC 314-55-075(11) - Quality Control (QC) and Labeling (audio - 1m).
      • Ryan Lee (audio - 2m). Lee stated it could be wise to “split these two things into their own subsections is they’re meant to be different things.” Additionally, he asked for language requiring that labeling be within a “commercially reasonable time from when the lot is created.”
      • Crystal Oliver (audio - <1m). Oliver liked Lee’s suggestion, adding that requiring labeling be completed “prior to transport” could be an appropriate time frame.
      • Shawn DeNae Wagenseller (audio - 1m). Endorsing Oliver’s “prior to transport” phasing, Wagenseller also wanted producers to be responsible for providing QC results to retailers in addition to processors as required in current rule.
      • Gary Green (audio - 1m).
      • Mark Ambler (audio - 2m). Ambler recommended that the rule say "a marijuana producer must offer” QC results to “any purchaser purchasing product.” He’d had an experience where a processor asked to buy cannabis trimmings from him after he’d sold the flower to him only to find out that WSLCB required the trim also be tested, a cost Ambler felt was “not always necessary and that’s inefficient.” On labeling, Ambler claimed the U.S. Drug Enforcement Agency (DEA)’s practice was to “take a picture of your plants, and they report on the number of plants. They take a picture of the product, and they report on the weight of the product” all before leaving the facility. “Your documentation is a picture and a number, that’s how it should be for us...when it leaves the facility is when it goes into LEAF and when it gets labeled.”
      • Jeff Merryman (audio - 1m). Merryman agreed with separating the two topics of the section, calling their current form “kind of confusing” as it was too “vague.” He was similarly concerned with being visited by WSLCB in the midst of dividing up and labeling cannabis lots under the current rule were he “not done doing what I’m doing.”
  • Staff wrapped up the forum and projected the future of the rulemaking project while fielding a final participant comment.
    • Schaufler said comments were still being compiled from the first listen and learn forum a week earlier and would be combined with “the comments received today.” He suggested that it was “very possible that we will hold an additional listen and learn session” on the rule section. From there, the agency would proceed to a CR-102 proposal for changes with its own formal comment period.
    • Reviewing themes from the session, Schaufler noted a “robust discussion” about expanding canopy for tier 1 licenses or allowing movement to a larger tier. Another central theme he’d heard was “clean up” around an earlier “state maximum canopy that was dictated by rule.” Hoffman was happy that “there might have been more tier 1s” in the discussion and broader “perspectives on what should happen with the tier structure.” She favored another listen and learn event “after we curate all of these comments” in order to “tease out where the issues are” as well as “rule hygiene” (audio - 4m).
    • Ambler asked WSLCB to consider asking tier 1 licensees to vote on proposed changes “just to see what our response would be.” Hoffman was open to a survey “in the future” after reviewing the information “that we harvested from this meeting” (audio - 1m).
    • Schaufler said the agency welcomed written feedback on the topic and that people could reach him by email at casey.schaufler@lcb.wa.gov or phone at (360) 664-1760. He told those interested to look for additional announcements on the rulemaking project via GovDelivery (audio - 1m).

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