WSLCB - Board Meeting
(April 28, 2021) - Summary

The Board proposed rules to double tier 1 producer canopy and heard comments calling for incentivized medical cannabis production and regulation of delta-8-THC.

Here are some observations from the Wednesday April 28th Washington State Liquor and Cannabis Board (WSLCB) board meeting.

My top 3 takeaways:

• Policy and Rules Manager Kathy Hoffman proposed rule changes to expand canopy for tier 1 producer licensees.
  • Tier 1 Expansion (audio - 4m, Rulemaking Project)
    • Hoffman asked for board approval to file a CR-102 which would expand “tier 1 canopy from up to 2,000 square feet to up to 4,000 square feet” (sq. ft). The revision would also adjust tier 2 licensees from the current 2,000 sq. ft to 10,000 sq. ft range to “4,000 square feet to up to 10,000 [sq. ft]” to avoid overlapping areas between tiers.
    • Describing the background of the rulemaking project, Hoffman explained it was opened in December 2018 following concerns expressed about business viability and the lack of production of medically compliant cannabis. The agency convened two listen and learn sessions in June 2020 and released a report after surveying tier one license holders specifically, Hoffman indicated. She noted a staff analysis on “the possibility of expansion” was included in the CR-102 materials.
    • Addressing concerns about market disruption, Hoffman stated that tier 1 producers comprised “almost 2% of licensed canopy.” The CR-102 memorandum stated, “WSLCB anticipates very little overall market impact as a result of allowing Tier 1 production space expansion.” Nonetheless, “allowing an expansion will create an opportunity and pathway for tier 1 licensees to become more competitive.”
    • Given board approval, Hoffman said she would file the proposal with the Washington State Office of the Code Reviser (WA OCR) with notification published “on May 19th, and [a] public hearing will be held on June 9th.” Assuming “no substantive changes” were made, she planned to present a CR-103 for board adoption“on or after June 23rd.”
  • Board Member Russ Hauge was satisfied “it’s come to fruition” after years of development and moved for approval of the CR-102. Board Chair David Postman observed that “the amount of stakeholder work has been extraordinary” and encouraged continued engagement from those interested in the expansion. 

• Hoffman reviewed emergency rules on vitamin E acetate and asked board members to rescind two existing emergency orders while renewing a third.
  • Hoffman announced action regarding the emergency rules on vitamin E acetate on April 15th and included a preview of the action in her April 27th board caucus update. She brought forward the rescission of a rule aligning the agency with a Washington State Board of Health (SBOH) emergency ban on the compound that was made permanent in late 2020 (audio - 2m).
    • The emergency rules were last renewed on January 6th.
  • Postman asked Hoffman to brief on the other proposed rescission, and Hoffman said the ingredient disclosure form had been “permanently adopted...on February 17th” and took effect April 20th, making the emergency rule “unnecessary.” Board members agreed, voting to rescind both emergency measures (audio - 2m).
  • Hoffman then asked to renew an emergency rule “regarding WAC 314-55-077 and 079” to allow for enforcement “without interruption against any licensed marijuana processor or retailer that fails to comply with the provisions of WAC 246-80-021” which would “replace and supersede emergency rules filed” in January. The emergency rule would remain in effect “until the board adopts them permanently” through an open rulemaking project filed on March 31st. The board approved the emergency rule (audio - 2m).

• Two public comments provoked responses from the board and agency staff on medically compliant cannabis products and regulation of derived cannabinoids like delta-8-THC.
  • Jim MacRae, Straight Line Analytics (audio - 4m)
    • While satisfied that the agency was moving ahead on tier 1 canopy expansion, MacRae suggested “increasing accessibility of product appropriate” for medical cannabis patients at the same time. He asked for “some explicit sensitivity...to incent and/or require that as a function of the increase in canopy allocation.”
    • Turning to “the CR-101’s history of canopy,” MacRae referenced earlier  analysis conducted for the agency by BOTEC “prior to the inception of the market” which estimated adequate canopy for the state market. He asked members to review the “now almost ancient documents” and reconsider “how much canopy is necessary to service the market.” MacRae indicated that canopy initially allocated by the board “was generous” at 2 million sq. ft, elaborating “when the expansion went up to 8.5 million [sq. ft] because of quote-unquote market demand” that he’d never seen “quantified or demonstrated in any tangible way.” Working under an assumption that the current allowed canopy for cannabis was “somewhere in the order of 10 million square feet,” MacRae believed the amount was “by most reasonable estimates at least three times the amount of canopy that’s necessary to service all consumption in the state.”
      • Learn more from the WSLCB canopy reports.
    • MacRae encouraged WSLCB leaders to “take a look at licensing if you can” and address “why after seven years there are still 44 licenses pending and not issued on the production side, including 23 tier 3s.” Recalling that when he’d applied for a license, “I was forced by the agency to shutter that administratively because the local zoning changed,” he questioned how after several years the applications had “been allowed to continue in limbo.”
    • Postman asked Hoffman about MacRae’s remarks on “incentivizing” medically compliant product creation, saying he’d seen that intention cited in the CR-101 materials for the project. Hoffman replied that the subject “was initially” included and staff looked at implications like “testing costs” but she didn’t "believe that those conversations got very far." While not “off the table,” Hoffman explained that medically compliant products hadn’t “been at the forefront of the conversation." She wasn’t aware of methods to reduce the costs of compliant cannabis production but was amenable to “a conversation that occurs after the expansion” in a “separate discussion” (audio - 3m).
  • Lukas Hunter, Harmony Farms Director of Compliance (audio - 3m, written comments)
    • Speaking to his “great concern with the lack of implementation of regulation...on the conversion of [cannabidiol] CBD distillate to delta-8 and delta-9” tetrahydrocannabinol (THC), Hunter said the cannabis market had been approaching “a point of price stability” in distillate production from cannabis flower “where producers are able to make a margin on distillate material and give a value to lower-quality cultivation products such as trim” from plants. Hunter reported that, at the moment, bulk trim sold for about twenty cents per gram. However, pricing “changes drastically when converting CBD isolate into delta-8 and delta-9 distillate” owing to the fact that the cost of CBD isolate was “$500 a kilo and the cost of chemicals for the conversion are insignificant.” He estimated that bulk production of distillate by extraction from cannabis plant inputs averaged $5 per gram, whereas distillate derived from CBD cost about $0.60 per gram.
    • Beyond “price disruption,” Hunter presented a “concern with the public health as synthetic cannabinoid production leaves...12% [unidentified] non-cannabinoid compounds and end products.” He outlined the process as “essentially molecular conversion rather than extraction of cannabinoids from plant tissue,” arguing the “unknown impurities could pose a risk to consumers.”
      • While the potential public health risks posed by unregulated derived cannabinoids are quite real and concerning, the term ‘synthetic cannabinoids’ often used to describe cannabinoids created via chemical means was already used to describe “a class of molecules that bind to the same receptors to which cannabinoids (THC and CBD) attach” but which, strictly speaking, are not cannabinoids themselves. While we are not lawyers at Cannabis Observer, we recognize that Washington state law specifically addresses ‘synthetic cannabinoids’ declaring it unlawful “for any person or entity to distribute, dispense, manufacture, display for sale, offer for sale, attempt to sell, or sell to a purchaser any product that contains any amount of any synthetic cannabinoid.”
      • The U.S. Centers for Disease Control and Prevention (CDC) has found that “hundreds of known synthetic cannabinoid chemicals and THC are different chemicals.” However, Washington state law on synthetic cannabinoids declares the legal term “includes any chemical compound identified in RCW 69.50.204(c)(30) or by the pharmacy quality assurance commission under RCW 69.50.201.”
      • The Oregon Liquor Control Commission (OLCC) has referred to “Delta-8-THC, Other Artificially-Derived Cannabinoids” in commission rulemaking on the topic.
    • Hunter shared concerns that large scale production of “synthesized distillate” would “irreversibly disrupt the far fragile market and eliminate countless producers.” He specifically called out the use of “strong lewis acids for the conversion of CBD into delta-8 and delta-9” as he said the acids were “not permitted under WAC 314-55-104.” Hunter suggested chemicals used to derive cannabinoids “are far from included [in] what’s in our allowed list of limited solvents” and regulation was needed to prevent “a transition to out of state hemp farms and the consolidation” of cannabis producers and processors in Washington.
      • Learn more from an informative June 2020 research review surveying the many ways that “CBD degrades to psychotropic products in acidic environments.” 
    • Postman pointed out that WSLCB “is moving, moving quickly" towards rulemaking on the topic “starting very soon,” referencing his statements on the topic at the prior board meeting. He relayed a staff impression that “we need to do rulemaking right away" and would “likely” put forward agency request legislation in 2022 “for some additional authority that we think we need.” The goal for the agency, Postman stated, was a solution “not so specific just to delta-8 or whatever the latest thing is because then there’ll be a new one right after it” (audio - 2m).
      • Agency leaders talked about development of delta-8-THC policy on March 16th.
    • Postman described Hauge as “our lead on this issue,” with Hauge expressing appreciation for the “detail” in Hunters’ remarks, promising to speak with him about it further. He seconded Postman’s remark on the need for rules prepared for “when the next evolution in chemistry comes along” (audio - 1m).
    • Hoffman spoke to the timing for action on the issue anticipated by staff, saying she would “bring a CR-101 to the board on May 12” and staff were endeavoring to “be as responsive as we can” (audio - 1m).
      • Later the same day, the agency released its policy statement on delta-8-THC, titled “Tetrahydrocannabinol (THC) compounds other than delta-9 and the conversion of CBD, hemp, or both to delta-8 THC, delta-9 THC, or any other cannabis compound that is not currently identified or defined in the Revised Code of Washington (RCW), the Washington Administrative Code (WAC), or both.”

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