WSLCB - Board Caucus
(September 28, 2021) - Federal Legislation Review

Cannabis Administration and Opportunity Act (CAOA) - WSLCB - CANNRA
[ Event Details ]

A staff briefing on potential effects of a draft discussion bill to legalize cannabis federally prompted questions on engagement with the Washington state congressional delegation.

Here are some observations from the Tuesday September 28th Washington State Liquor and Cannabis Board (WSLCB) Board Caucus.

My top 3 takeaways:

  • Draft federal legislation to legalize cannabis, the Cannabis Administration and Opportunity Act (CAOA), gained the attention of board members who requested a briefing on the proposal to understand how it could impact their regulatory work.
    • Director Rick Garza mentioned potential federal policy activity throughout the year as he worked in the leadership of the Cannabis Regulators Association (CANNRA).
    • On August 31st, Board Member Russ Hauge asked for staff to brief the board on possible impacts of the CAOA.
    • On September 23rd, CANNRA leaders released a “Response to the Discussion Draft of the Cannabis Administration and Opportunity Act.” In it, the organization members shared comments that:
      • Federal regulators should set a floor, not a ceiling.
      • Minimum standards are needed for lab testing, ingredients and additives, packaging, and labeling.
      • Data monitoring and research are paramount to inform policymaking and should be resourced and prioritized.
      • The generation of revenue from cannabis taxes should be reserved for states.
      • More concordance and clarity between hemp regulation and cannabis regulation is urgently needed.
      • Attached were more detailed remarks on the bill around:
        • Regulatory Agencies, Timelines, and Authority
        • Restorative Justice and Opportunity
        • Lab Testing and Product Safety
        • Medical Cannabis Marketplaces and Access
        • Research and Data Monitoring
        • Cannabinoid Hemp
        • Public Health and Prevention
        • Cannabis Trade Practices and Interstate Commerce
        • Taxation of Cannabis and Establishment of Trust Fund
    • At the caucus, Board Chair David Postman introduced Policy and External Affairs Director Justin Nordhorn to discuss the CAOA as members had “a real need to dig into that and start looking at how the agency’s going to respond to that” (audio - 1m, video).
    • Nordhorn began a “high level” review of the “federal discussion draft” by establishing that agency staff had divided up the “160+ page bill” based on topics like “public safety, taxation.” Expecting “a lot of iterations,” he said they’d reviewed the existing version and had “some good conversations nationally with other states and also through our national organization,” CANNRA (audio - 1m, video).
    • Nordhorn described federal standards as “critical” in making a “foundation and platform” and that without consistency on products “when it opens up to interstate commerce we could have a number of issues going on” (audio - 1m, video):
      • “People wanting to get their lab testing done in other states and then bring product back in”
      • “Online sales conflicts are gonna be...prevalent if packaging and labeling is drastically different in, in a number of areas”
      • Once federal agencies such as TTB got involved he hoped there would be “some good foundational pieces for states to rely on.”
      • “There’s a lot built into the discussion draft around states’ rights...making sure that...states have the opportunity to regulate and govern the products.”
    • Nordhorn noted a potential benefit of federal change included opening “up banking opportunities for all, which really can change the dynamics across the United States.” Taxation was mentioned in the draft but the “opportunity for licensees to operate under normal business circumstances as other businesses” would have significant ramifications, he said, citing “being able to take the tax credits on net income versus their gross income. Being able to utilize...the 280E tax exemptions.” Nordhorn compared it to alcohol, saying the discussion draft had “thresholds for smaller businesses, so for Washington in particular...this would be a positive” since the state already had “a predominantly small business environment. I don’t think any of our licensees, really, would fall into the big business category” (audio - 1m, video)
  • Policy and External Affairs Director Justin Nordhorn drilled down into analysis of the draft’s hypothetical impacts including issues of testing, social equity, and hemp.
    • Nordhorn described how the analysis was undertaken to consider “what type of response should we have to” Washington’s congressional delegation. Whether agency leaders decided to “be broad” or focus on specific points in their guidance to members of congress was not decided, but he wanted to be prepared to respond before the CAOA was “actually a bill before congress.” Nordhorn’s hope was that federal lawmakers set “some sort of a floor on regulation standards that everybody” could follow, but “not necessarily a ceiling, don’t put the caps on different things” that might “negatively impact” existing state cannabis programs. He further believed state regulators needed to retain the ability to “be responsive to....urgent regulatory needs.” If federal policy became “too strict,” Nordhorn cautioned, officials would end up “tied to the federal response” which often “takes a little longer than the state response” (audio - 2m, video).
    • Testing (audio - 1m, video).
      • Nordhorn stated that minimum standards for laboratory testing mattered for a number of health and safety reasons. “In the absence of that, all the states are going to develop their own standards” which could lead to “variances” that officials would then need to “contend with.”
    • Packaging and Labeling (PAL, audio - 1m, video; audio - 1m, video)
      • As states set “their own approach for review and evaluation of the safety of new product and additives, and we’re developing our” PAL standards, Nordhorn was concerned there would be “different information..spreading across the United States.” As conflicting PAL standards could lead to more debate between jurisdictions, he wanted federal authorities to “have that floor set forward so everybody can rely on that.” Nordhorn mentioned “structure and function claims”---which had “traditionally been an FDA type” of oversight---could be a challenge, “especially if they’re going to treat cannabis like diet supplements.” Evaluation of PAL claim making would be “pretty challenging aspects” of regulator operations.
        • On September 15th, agency representatives published Policy Statement 21-04 concerning packaging and labeling of infused cannabis products certified as medically compliant by the Washington State Department of Health (DOH). This included expanding the evaluation process to consider “structure or function claims for marijuana [cannabis] infused products...This policy statement is intended to define medically compliant cannabis product structure or function claims to the extent possible, and to establish a framework to guide the evaluation of structure or function label claims.” 
      • Later, he added that PAL language in the CAOA appeared “a little bit more restrictive” and could necessitate “additional steps to our processes, it’s going to slow our approval times down, and we’ve seen the approval sometimes, within the federal government, take a little bit longer.”
    • Cannabis/Hemp Concordance (audio - 3m, video) 
      • Nordhorn wanted federal policy to have some coordination “between hemp regulation and cannabis regulation,” conveying the opinion of agency staff that it was “urgently needed.” He noted the mix of state and federal policies already meant guidance was needed “especially as we’re seeing emerging products” with “impairing cannabinoids.”
      • Nordhorn indicated products not regulated by WSLCB were “being derived out of hemp, and they’re online, and they’re in the marketplace with little to no regulation.” Rules varied in other states, he said, with some jurisdictions permitting “more [tetrahydrocannabinol] THC than products” in Washington and “not subject to the same testing and safety protocol standards.”
      • Nordhorn believed federal rules needed to encompass “product types such as delta-8[-THC] and delta-10[-THC]” as well as delta-9-THC. The discussion draft was “general to cannabis products,” he remarked, but used the term “THC measurable cannabis products” in tax sections in addition to references to delta-9-THC. Given experience with a “similar” description in state law for delta-9-THC, Nordhorn found inconsistent use along with the generalized term “THC” was “challenging.” He asserted, “We would ask them to bring those in line.”
      • Returning to hemp later in the briefing, Nordhorn cited the term “‘inadvertent,’ as it relates to delivery of hemp” as potentially confusing because it required “a different standard of...knowledge base when you’re going through the delivery area issues” (audio - 1m, video).
    • Medical Cannabis (audio - 4m, video)
      • With medical cannabis, the CAOA proposed that the U.S. Secretary of Health and Human Services determine “whether unique standards for cannabis specified for medical use under State law are necessary or appropriate.” Nordhorn and staff were unsure “what that would mean for our particular program...are we gonna have somebody say ‘no, that’s not appropriate’ once we already have an established marketplace and structure for these types of products?”
      • If federal officials “could pick and choose” which state medical cannabis policies to recognize, Nordhorn believed it wouldn’t be consistent nationally. Noting section 1103 on "misbranded cannabis products,” he said that subsection (8) stipulated mislabeling included claims a product “is intended for consumption or application by an individual under 21 years of age.” Nordhorn pointed out there were state provisions for medical cannabis use by underage persons and “if we have such tight controls in the federal bill does that...eliminate those opportunities on the state level for patients?”
      • The definition of ‘producer’ in the section on “purposes of cannabis enterprises” featured exceptions for “personal or family use.” Nordhorn told the group, “this is going to conflict with our medical marijuana provisions...which really allows for the medical cooperatives.” Given that federal medical cannabis “growing opportunities are for individuals only,” how would patient cooperatives be impacted, he wondered.
    • Social Equity (audio - 3m, video) 
      • Nordhorn predicted social equity could be impacted by the CAOA, as any federal definition of equity applicant qualifying criteria could create “significant differences” with state equity policies. He mentioned that section 311 on “Resentencing and expungement” could be “real positive” but there were exceptions mentioned, particularly around "aggravating role adjustments,” which could contribute to “continued inequity.” Nordhorn wondered, “If we take recommendations out of the social equity task force and apply them, are they then basically altered in the future based on the federal language?”
      • Criminal penalties were mentioned in the draft, Nordhorn remarked, and “may continue to perpetuate barriers for social equity applicants” based upon “enforcement approaches across the United States” which created the potential for “different applications” of the law with disparate impacts. He suggested this might also come into play “in the disqualifying offense area of the federal permitting.” Should an equity licensee in the state be “required to get a federal permit,” hypothesized Nordhorn, and their criminal background included an offense “considered an disqualifying offense that we didn’t consider disqualifying, are they then...no longer eligible in the state to operate? And that really is a point of concern.”
    • Employment and Contracting (audio - 1m, video) 
      • Nordhorn stated that while cannabis would be descheduled, “continued drug testing allowances...can still be in effect at the federal level.” He added that “contracted federal workers,” as well as “state-to-federal contracting,” or officials “working in [a] federal program as our employees” could be impacted. If federal drug testing on cannabis changed, “how is that going to impact our opportunity to execute the contract?” Not a “big highlight” of the CAOA, Nordhorn nonetheless promised agency staff would “keep our eye on as it unfolds.”
    • Research (audio - 1m, video) 
      • Looking at the “research, training, and prevention” section of the draft, Nordhorn commented that “there seems to be data points that will be difficult to capture and review.” He noted “high school dropout rates correlating with cannabis use” and tracking “sick leave usage” could place businesses “at risk for seeking excessive medical information.” Nordhorn wanted to understand who was responsible for capturing that data.
      • He added, “This should include impacts around the poly-drug use on impaired driving, not just cannabis impaired driving,” but overall “the gathering data would definitely be beneficial for assessments on the long term impacts of legalization.”
    • Descheduling (audio - 2m, video) 
      • Removing cannabis from federal scheduling would “certainly change the post-prohibition approach,” affirmed Nordhorn. Moving from cannabis being “still generally illegal" with some exceptions, to being entirely legal with some other exceptions could dramatically impact existing state laws, he said.
      • Nordhorn remarked that there was some interest in having federal legislation address “whether states may maintain the residency requirements for cannabis licensing” as a way to “avoid unnecessary litigation.”
  • Nordhorn offered next steps on how agency staff would continue engaging on the issue and addressed questions from the board before Director Rick Garza shared his perspective on the topic.
    • Nordhorn affirmed that staff would continue to meet to discuss the draft bill, form “a potential response,” and begin to coordinate with the Governor's Office to ensure they were “comfortable with the information that we would propose to share.” WSLCB staff planned to vet everything with the board “prior to moving forward” with contacting the Washington congressional delegation (audio - 1m, video). 
    • Hauge brought up the CAOA impacts around the U.S. Commerce Clause, asking if it was “specifically” addressed by the draft and “the potential for restriction on interstate commerce.” He said his fixation may have resulted from “a bad experience in law school I’ve been thinking about a lot, because it is the lynchpin for basically harmonizing, in the good sense, restrictions across the country” (audio - 2m, video).
      • Nordhorn replied that the bill didn’t "heavily" deal with that issue, but parts of the draft did “weave into that discussion.” He hadn’t seen "clear language" that indicated how challenges on those grounds would be treated, but noted an emphasis on state rights to not allow adult use of cannabis. However, even in states that didn’t permit legal cannabis “you still have legal opportunity to transport through those states,” Nordhorn added, though he was uncertain how that might work logistically between federally governed interstate highways and locally controlled roadways. He concluded, “I don’t think that [the CAOA] really laid out a lot of pieces that would prevent some of the previous litigation that we’ve seen.”
    • Board Member Ollie Garrett commented that “anything can change at this point” but she hoped the state social equity task force would “keep an eye on” the potential bill in order to “work alongside” federal authorities on definitions for applicants and other program specifics. Nordhorn mentioned the conversations with federal officials WSLCB officials had already had, and while nothing was finalized about which federal institutions would exercise authority over cannabis control, staff feedback was already being acknowledged by their federal counterparts. Still, he anticipated there’d “be a number of iterations" before any law was passed (audio - 2m, video). 
    • Garrett asked who was representing Washington state in the federal discussion on cannabis. Nordhorn didn’t know who was part of the conversation, but acknowledged there could be members of the Washington delegation involved. Postman indicated that Senator Murray, in her capacity as US Senate HELP Chair, would have a chance to weigh in on any bill and that WSLCB officials had been in contact with her staff “and will continue to.” He added that Washington’s junior senator, Maria Cantwell, would contribute as well (audio - 1m, video). 
    • Postman reiterated his belief that changes in U.S. cannabis law weren’t “going to happen anytime soon," but appreciated that WSLCB leaders needed to “respond and position ourselves” for legalization. As Nordhorn continued to meet with staff on the matter, “maybe the three of us need to split up as well and be a part of those,” said Postman. Considering Nordhorn’s remarks on federal officials setting “a floor” on cannabis standards, Postman observed this was “how a lot of federal regulation works and the states can be more stringent.” He called for states’ rights to be respected so that there was “flexibility” for “pioneers on this” because regulators in legal cannabis states had gained experience, while federal officials had “experience in nothing related to this other than shutting it down.” Assuring the group there would be continued involvement by the board, Postman felt conversation on national legalization was sure to continue at the agency and elsewhere (audio - 3m, video). 
    • During his update, Garza mentioned participating in several internal meetings on the CAOA and “we’ll do that again to kind of finalize that document.” He described how agency staff had contacted the state’s congressional delegation “about a month and a half ago” following a June 23rd meeting of CANNRA members (audio - 6m, video). 
      • Garza promised to vet any response to members of congress with both the board and staff in the governor’s office before submitting it. After that point, Garza and Director of Legislative Relations Chris Thompson would schedule a meeting with the congressional delegation, or more likely their staff, to review the WSLCB feedback. Considering any change in law to be “years away," he nonetheless wanted the agency involved “just like CANNRA is.”
      • He said CANNRA leaders were scheduling a December “meet and greet” with Schumer, Booker, and Senator Ron Wyden, CAOA backers whose states were members of the regulators association. Garza added that CANNRA representatives had been in several meetings with staff from federal agencies like TTB whom he anticipated would be a key licensing authority on the federal level, “just like they do for alcohol.” He concurred with Nordhorn’s fear that there could be differing standards for criminal history background checks that “interfere with our social equity program.” In the meeting with representatives of CANNRA and TTB, Garza raised the point, saying he got the impression that “they had not thought that through.” He didn’t want federal agencies to “interfere” with state-level social equity programs “and the fact that we’re going to be looking at criminal history differently.”
      • Mentioning the response letter from CANNRA leaders regarding the CAOA, Garza pointed out that it included “many of the same areas” discussed by Nordhorn, as well as “five pages of details” on their positions, the “nuts and bolts” of potential federal policies.

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