WSLCB - Webinar - Agency Request Legislation Proposals
(August 11, 2023)

Here are some observations from the Friday August 11th Washington State Liquor and Cannabis Board (WSLCB) webinar on three potential agency request legislation proposals.

My top 4 takeaways:

• Director of Policy and External Affairs Justin Nordhorn introduced the topic of agency request bills for the 2024 legislative session (audio - 3m).
  • State institutions like WSLCB can draft ‘agency request legislation’ to seek statutory changes related to their powers or responsibilities. Proposed request bills must be approved by staff from the Washington State Office of Financial Management and the Governor’s office during the fall before the following year’s legislative session in order to be offered for legislative sponsorship.
    • Though agency request bills may be more likely to be considered and passed into law, it’s not guaranteed. 2022 request legislation from WSLCB on cannabinoid regulation was not passed, while a 2023 request bill on cannabis subpoena power was passed by one chamber and remained active through the 2024 session.
  • In the webinar, Nordhorn emphasized that the event was an “informal overview of some of the concepts that we have for agency request legislation,” and the “draft concepts” they would discuss weren’t finalized request bills. “We've had a number of things…on our radar to look at over the last several years, and we looked at some of these and thought this might be a good opportunity to get some feedback” from stakeholders, he explained.
    • Nordhorn suggested the “first part of September” would be when officials made their final decision on what request bills to move forward, encouraging “comments by [August] 25th… that way, if folks have questions or they're wondering about intent, or any of those types of things, we can have that discussion.” He said written feedback “would be the preferred method,” pointing to rules@lcb.wa.gov as the best way to submit comments. 
  • Nordhorn acknowledged the event was being recorded by Cannabis Observer, and cautioned “on any of the recording, we may end up having some nuanced questions between sessions, and I certainly don't want to have things taken out of context if the answers are slightly different based on the fact patterns that are presented” in subsequent webinars on the matter.
    • The full context of the event is available in the event timeline.

• The majority of the meeting focused on potential legislation to permit contract growing of cannabis by licensed producers on behalf of patients.
  • Nordhorn reviewed a “contract growing concept” for medical cannabis patients meant to bolster a medical cannabis program that “came upon the state in 2015 with Senate Bill 5052.” He described how the legislative intent had been “for a single source of outlets” for both medical and adult use cannabis products, yet “what we're finding is that folks are not necessarily utilizing the registry” for patients. Moreover, “we're not having the level of engagement that was anticipated, or expected of…production” of compliant products under Washington State Department of Health (DOH) standards, he explained. Nordhorn stated staff had been “trying to figure out what types of pathways and steps can be taken to start improving that program beyond what we can actually do in rule.” He told the group a potential request bill would be part of a “multi-year assessment of a number of things that I've heard from patients” (audio - 6m).
    • Nordhorn relayed that a “one of the very common topics that people have come up with is they really want to know the grower.” He expressed awareness of “a number of unlicensed farmers markets that are occurring across the state,” and for some medical cannabis patients “because it's more personal for them they get to know the grower, they trust the product, and they may not even be doing all the testing.” He acknowledged, “there's some needs being met that the state system currently doesn't seem to be meeting.”
      • The same day as the webinar, WSLCB announced seizures at an unlicensed cannabis club in Tacoma, and a retailer in Lacey accused of falsely claiming tribal affiliation.
    • Existing law permitted “immature plants and clones” to be sold by licensed producers for patient home cultivation, noted Nordhorn, but “what about the patients who don't have access to be able to grow at home? Maybe they have rental agreements that are preventing them from having that particular opportunity.” He said WSLCB was open to expansion of the “immature plants and clone aspect into a contract service for patients” where, “instead of growing at home, [patients] contract with a licensed producer to be able to grow…whatever particular strain [they] might be looking for.” Nordhorn felt this allowed “flexibility between the two parties in order to figure out what they would like to have grown, how that would be grown, what would be tested,” calling those “potential points in a contract between” patients and licensees. This kept registered patient production “in a licensed facility” with “security and oversight” by state regulators, he argued, but would also give patients peace of mind by “hav[ing] a secure facility to be able to grow my medicine in.”
    • Nordhorn further offered that a contractual relationship between patient and producer meant “there wouldn't necessarily be any type of tax structure that needs to be created.” He posited that a licensed producer would be “able to grow what you could grow at home, and then you'd be able to come down and and have access to your medication” without the “sales and excise tax considerations,” another concern raised by patients. Nordhorn believed there was a “benefit, if you will, of not having to build in expensive structures to be able to support patients in this particular area.”
    • Summing up the benefits of the draft concept as helping patients get “access to…medicine that they feel is appropriate for themselves…getting them in connection with folks that they can trust on growing and those sorts of things,” Nordhorn stressed this was strictly about production, not “end product” cannabis. “The concept here is really around growing…and so there's nothing in here that is extending that into the processor license, and end product,” he remarked, emphasizing this was an “intentional omission.”
  • The first question came from John Kingsbury, chair of the Cannabis Alliance Patient Caucus, who asked, “How many clones [were] being sold to patients under the current system?” Nordhorn didn’t have any information around that point, and felt he’d “probably have to check with our examiner's unit to see if we have any tracking on that” (audio - 1m).
    • Kingsbury and Alliance members had been organizing an August 27th March for Homegrow in downtown Seattle to support expansion of home cultivation rights for all adults.
  • Kingsbury then asked how costs for pesticide testing would be distributed under the contract. Nordhorn responded that the contract with a patient would be up to them, as the producer wouldn’t be “creating Department of Health compliant product for sale…we're growing for the patient. And so that's really a dynamic that the patient needs to be able to set up with the producer.” While a contract could specify testing in line with medically compliant or adult use items, “we didn't want to put so many regulations into this that it basically can't be cost effective for patients either, because the cost is another issue that patients have talked a lot about” (audio - 2m).
  • Next, Kingsbury asked, “if the yield is more than 16 ounces what would happen to the balance of the product?” Nordhorn speculated that any “overages” in cannabis “could still be carried over for the patient. So at home you’re really limited on the amount of plants you can have.” He said patients couldn’t leave producers with “more than you would be allowed to leave any store with,” and couldn’t keep “more at home than what you would currently be allowed in statute to have at home.” Cannabis in excess of this amount could potentially “go in” with the licensee’s other cannabis flower “because it's all within the same canopy space,” commented Nordhorn (audio - 2m).
  • Cannabis Observer Founder Gregory Foster asked for confirmation that the WSLCB draft proposal meant no testing would be required. Nordhorn affirmed that this would be entirely up to the patient and licensee: “we've been thinking about this from the standpoint of” the “unlicensed farmers markets out there serving patients, and they seem to be drawing people in. And so, if the patients are confident with the growers that are providing the product, they're not necessarily getting tested product.” WSLCB had an interest in curbing “that type of activity,” Nordhorn stated, in favor of untested cannabis moving through the licensed marketplace and “provid[ing] that same level of confidence for the patients” (audio - 1m).
  • Scott Atkison, Zips Cannabis Co-Owner, questioned whether a patient could theoretically “contract with 100-plus growers and produce three ounces of each from each producer daily,” as he was concerned about “stimulating resale activity that avoids excise taxes.” Nordhorn acknowledged that this wasn’t addressed in their proposal, and they “may have to be something" in a request bill. He indicated their proposal would be limited to patients registered in the DOH database, and “there are still some tracking components for the producer to be able to maintain on that inventory,” so existing rules could help limit that manner of abuse of contracts (audio - 1m).
  • Kingsbury wondered if the existing Cannabis Central Reporting System (CCRS) would be able to monitor patient contracts. Nordhorn knew there was “debate about how robust that particular system is, but that's not what this bill is about” (audio - <1m).
  • Shea Hynes, Lux Pot Shop Co-Owner, questioned whether unlicensed markets were really serving patients, asking “how do we know this and that it's not just being used by illicit market dealers?” Nordhorn called this a “fair question…I don't have tangible data saying that, but we are hearing from folks about these markets and the general sense is that many patients are going” as well as “indications that services are provided in those particular areas that a patient may be looking for.” He referenced the University of Waterloo International Cannabis Policy Study (ICPS) surveys “showing that over 90% of the consumers surveyed are utilizing the legal recreational markets, so that does not have a strong indication that there's an overwhelming black market across the state” (audio - 3m).
  • Lukas Hunter, Harmony Farms Director of Compliance, commented on the economic incentives for licensed producers. He believed his company could produce “about seven and a half pounds of flower” from 15 plants, and the right to “offload” excess cannabis into their commercial supply “would be somewhat significant.” Considering this “an attempt to get discounted quantity products into the hands of our medical patients,” Hunter felt “it needs to make business sense for producers to want to engage in contract growing,” and pointed out that there had been a legislative attempt to eliminate the excise tax for patients. He mentioned this approach “would lower the price for smaller quantities of cannabis at retail stores, making the product accessible across the state at reasonable prices for patients” (audio - 2m).
  • Hynes agreed that patients were purchasing some adult use cannabis for medical purposes, and asked whether WSLCB had any information on what those products were so that licensees might be more interested in making them (audio - 3m).
    • Nordhorn didn’t have those details, but pointed out “when we look at the number of producers actually producing DOH compliant product for the stores, I want to say there are two or three producers in the state and we continuously have heard from patients that most retail stores are not carrying any of that particular product.” Additionally, he knew there were “somewhere around 11,000 patients registered in our state. And if we did a population comparison, with other…states, I would estimate that we would be around 85,000 patients.”
    • Nordhorn concluded that since passage of SB 5052 in 2015, “we have not seen…medically compliant product being produced for retail sale” in a substantive amount. “What I understand from those types of interactions is that [patients were] not finding what they're actually looking for. And so this is one avenue of seeking that particular product.”
    • Hynes argued that cannabis items that could be medically compliant were sold to retailers as adult use cannabis items since the cost for medically compliant testing was more expensive. He said his stores and “most all stores offer the [sales tax] discount to people who come in with medical cards even if we're not a part of the program.” Hynes felt that exempting patients from the excise tax could be beneficial, but since many were already buying from the licensed market “there's just not a compelling lift for patients to get on the registry and seek stores that are actually medically compliant.” Nordhorn acknowledged his perspective, and said that had been mentioned by “business owners, but I'm not hearing those points from patients.”
  • Hunter reiterated that he wasn’t seeing the economic incentive for producer/processors to supply medically compliant products at higher testing costs when the market share for the items was “less than a percent.” If there were lower taxes on compliant products, he thought Harmony Farms "would be more than interested if it wasn’t a financial risk to get into producing those products." Hunter also perceived retail stores as the better distribution system for medical cannabis as opposed to having patients have to visit licensed producers. And even if “the cost would be significantly cheaper for cannabis to be passed along to medical patients through contract growing,” he nonetheless believed “it's still a significant cost when you're looking at multiple pounds of cannabis, and then not being able to pick up all that cannabis within one go of it.” Nordhorn encouraged Hunter to submit comments and suggestions in writing (audio - 3m).
  • Atkison appreciated what WSLCB hoped to accomplish with the proposed request bill, but said “it goes a bit too far." Mentioning the bust in Tacoma that day, he indicated he’d "known about this operation for quite some time” and was troubled that the draft concept allowed patients to procure cannabis at “wholesale” rates and potentially resell the product without required taxes, a class C felony offense. Atkison worried about a “proliferation of activity that is not helpful for the industry” believing patient behavior wouldn’t be regulated by WSLCB—though he’d cited an enforcement action by agency Enforcement officers—and urged staff to draft additional restrictions beyond an “honor system” (audio - 4m).
    • Nordhorn sympathized with Atkinson’s concerns, but felt improving the medical system had come up for several years. He added, “unfortunately, from the retail side, we're not hearing any suggestions on how to improve the system for patients…and here's an opportunity to expand on a current allowable practice.” He asked for any written suggestions or policy ideas “for a higher level of service” to be forwarded to WSLCB staff
  • Kingsbury requested agency officials stay “mindful” about the fact that patients had been interested in buying clones from producers, “and oftentimes what I'm saying is…’you can drive to Vancouver, or you can drive to Arlington and get clones that way,’ and for a population that is disproportionately poor and immobile….those are huge barriers and I worry about reproducing those barriers here.” He wanted to leverage licensed retailers to help distribute medical cannabis, thereby avoiding Atkison’s concerns, feeling it was “crazy” that more than a decade after cannabis legalization in the state unlicensed farmers markets would be “thriving.” Kingsbury lauded agency staff for listening to patient complaints, but still perceived access to medical cannabis as being best handled by endorsed retailers complying with regulations. He summed up that “it would be a pity if we had one more of those, because patients really can't have one more system that exists on paper but not in reality, and the complicated nature of this makes me worry that it could end up that way.” Kingsbury advocated for the elimination of the excise tax for patients as the most practical solution (audio - 3m).
  • Atkison seconded Kingsbury’s perspective, saying some patients were buying adult use products or not registering with the state. “If we could assist these folks with some excise tax relief…that would really drive a substantial increase in the activity that's occurring” in the licensed market (audio - 1m).

• Updating cannabis advertising standards to more closely align with alcohol and other business signage was also being considered as agency request legislation (audio - 11m).
  • “Our staff, particularly in Enforcement, spends an enormous amount of time on cannabis advertising,” established Nordhorn, “and a lot of it tends to come from complaints from one retailer to another retailer.” He chalked this up to licensees “pushing on the envelope, if you will, of a number of different types of advertising because, in my opinion…of the, the tight regulations around advertising.” Nordhorn stated that advertising violations had been “our number one topic of a notice to correct” issued by Enforcement staff “pretty much since the inception of this.”
    • The board opened rulemaking on advertising in August 2022, however staff noted that the project was “paused” as of April 11th.
    • Find out more from the WSLCB frequently asked questions about cannabis advertising.
  • Nordhorn recognized there was “a strong interest, in retailers in particular, being able to operate businesses along similar lines as other businesses” when it came to advertising. “We also recognize,” he said, as “more and more states” legalized cannabis “people have looked at it as…more highly regulated than other markets, and so…how do we get” to a “more level playing field and in this particular area?”
  • Aware of a 2023 bill to move advertising towards greater local control, Nordhorn framed the conceptual draft advertising bill as “if folks are not necessarily interested in passing those…what are other alternatives that we can look at to provide…some more flexibility in advertising, and yet continue to make sure that we're meeting…our state public health and prevention” goals. He said the potential request bill dealt with the number and type of exterior signs, reporting that staff “pivoted quite a bit” in the direction of aligning cannabis advertising rules “with other age restricted products such as alcohol, and so in alcohol you're allowed to have four signs… in addition to your trade name sign.” Nordhorn commented that retailers could possibly “have a trade name of a reasonable size on basically, each side of their building, you can have that monument sign out front and those wouldn't count towards the advertising signs…so this would increase it from two to three.” He elaborated how “part of the reason that it doesn't go all the way to four compared to alcohol is trying to create opportunities for folks, to be able to advertise medical cannabis,” incentivizing signage limits “that would actually be more liberal…then the alcohol laws” when geared towards patients. Nordhorn said staff hoped to find a balance “around the level of advertising on age restricted products, and then what's reasonable for a business to be able to, to do.”
  • Turning to the sizing for advertisements, Nordhorn stated that alcohol advertising was limited to 1,600 square inches, and they had researched and found “trade name signs” averaged “6,915 square inches…and so we rounded that up to 7,000 square inches.”His impression was that this limit for a trade name sign “would be basically a standard size for almost any business…that would be out there.” Furthermore, Nordhorn described an intention to “address the opportunities around the monument signs” situated outside of a retailer.
    • Learn more about WSLCB required signage for all licensees.
  • Nordhorn commented that they had also built “upon some of the recent policy decisions that the legislature has made” regarding “making sure that we don't see any type of advertising commingled with any type of” alcohol or tobacco use, “and also no correlation between motor vehicles and driving.” This was in part because agency leaders had seen how “traffic safety numbers across the state ha[d] a high rate of polydrug use, and most commonly [was] alcohol and cannabis together,” so Nordhorn felt regulators had to be mindful of “crossover advertising.”
  • There were also proposed “technical changes” he considered to aid in age restrictions on cannabis, “we look at those who are under 21 years of age, not just youth,” and expanding the definition around what constituted “adult facilities.” Nordhorn further pointed out changes “around the acquisition issues so just being clear in the statute that you wouldn't be able to advertise below cost of acquisition, except for the medical cannabis, which there are allowances in state, law that, to provide that for free.”
  • Nordhorn expected there would be questions around billboards and distance from retail outlets. He said staff wanted to “address the intent of how some of the advertising is…utilizing that, the 1,000 feet based on the other 1,000 foot language in current statute for other issues, and really it's 0.119 miles or three city blocks.” He considered this in keeping with the purpose of billboards to attract attention farther from a business premises, rather than as a business’s main signage. Nordhorn added that sponsorship opportunities such as "adopt-a-highway signs [were] not prohibited."
  • Hunter brought up "digital media advertising," which had fallen “half-outdoor” by agency staff in the past, and he wondered if there was any plan to more thoroughly outline what constituted such advertising (audio - 1m).
    • Nordhorn replied that this topic wasn’t addressed in their conceptual request bill, however the issue might be taken up once advertising rulemaking resumed. The draft request language covered “areas that wouldn't really be as available to put into a rule,” he said, while also encouraging Hunter to send any suggested language changes on digital advertising in an email to Rules staff.
  • Kingsbury wondered if there would be any enforcement around whether stores advertising a medical endorsement were compliant with the accompanying rules. He noted the “poor correlation” between stores meeting requirements for medical endorsements along with minimal oversight by WSLCB, expressing concern that more advertising privileges for endorsed stores without accountability was “giving stores an even greater incentive to cheat, just to get that sign space” (audio - 3m).
    • “One of the things we tried to build into this particular proposal, is that in order to be able to utilize that extra advertising,” retailers would need to demonstrate being “in good standing with the provisions of rule and the board,” Nordhorn remarked, believing it “actually creates a stronger foundation for the compliance issues around, being able to utilize that endorsement appropriately.” The change wasn’t the “be-all, end-all” of regulating endorsed retailers, but “I do think it has a strengthening impact to that” were the draft bill to move forward.
  • Brooke Davies, Washington CannaBusiness Association (WACA) Deputy Director, promised to bring the conceptual draft to the attention of her group’s members, but noted that they’d been proponents of the advertising bill Senators passed in 2023, and made clear WACA leaders were open to “a way that we can work together" on advertising changes. She proposed a system whereby “content” of advertising was regulated by WSLCB, but size allowances were set and enforced by local governments (audio - 2m).
    • Nordhorn indicated that “size and number” were two key facets of advertising agency officials expected any bill wording to account for.

• Nordhorn promised other opportunities for feedback on the concepts in upcoming webinars (audio - 1m).
  • Nordhorn thanked attendees for their input and indicated people could continue to submit written comments to WSLCB via Rules@lcb.wa.gov. He commented that staff would be hosting two more webinars on the draft request bills scheduled for Thursday August 17th and Monday August 21st.