WACA - Fall Policy Conference - 2021 - WSLCB State of the Agency
(November 3, 2021) - Summary

Washington Flag - Cannabis - Rick Garza
[ Event Details ]

Director Rick Garza shared some observations with attendees, focusing on vertical integration, cannabinoid regulation, medical cannabis, and social equity before taking questions.

Here are some observations from the Wednesday November 3rd Washington CannaBusiness Association (WACA) 2021 Fall Policy Conference.

My top 3 takeaways:

  • Garza gave a “State of the Agency” talk covering issues of concern to WACA members, sharing a history around vertical integration and out-of-state capital in addition to concerns of agency leaders like social equity in the market and regulation of novel cannabinoids.
    • Garza began by remarking that he’d speak to “bigger issues” based on what he’d heard from Christophersen and WACA members earlier in the day in hopes of “help[ing] the dialogue.” He said values identified by attendees including “collaboration, clarity, information, a level playing field” were what “any regulated community ever wants.”
    • Garza said, “whether you like it or not,” Initiative 502 lead author and campaign director Alison Holcomb crafted the 2012 ballot measure “to mirror us coming out of [alcohol] prohibition.” In doing so, the initiative “didn’t allow vertical integration.”
    • Describing an “unregulated medical marketplace” that he claimed was vertically integrated, Garza believed “the medical community and the industry and the patients wanted nothing to do with this; it was not a system that was going to work for them.” Colorado voters legalized cannabis at the same time as Washington, he commented, but as medical cannabis dispensaries were more regulated by the state, officials there “basically gave permits and licenses for those folks to sell adult use. It was easy. For us, it was very difficult.”
      • He talked about SB 5052, legislation passed in 2015 merging medical cannabis production and distribution in Washington state with adult use market regulated by WSLCB under a program developed by Washington State Department of Health (DOH) staff. “We learned that there were probably about 1,300 medical dispensaries around the state, vertically integrated,” Garza claimed, yet the board chose to add 222 “more retailers.” During the licensing window under the law, he said “less than 10%” of the applicants received licenses “and they weren’t going to enter vertically integrated.”
        • In January 2015, Garza testified in support of SB 5052 on behalf of WSLCB, noting the “massive proliferation of grey market dispensaries across the state” and highlighting media coverage alleging the “true nature of many of these dispensaries” was for “easy availability of marijuana to anyone, regardless of whether or not they even have an authorization card.” He argued Washington had “many dispensaries illegally selling a product that was meant to serve needy patients.” Garza cited one aspect of SB 5052 would be “less licensing” for the medical cannabis market (video). 
      • Following the application window, “we hear about social equity,” Garza remarked. He acknowledged “many communities of color were impacted because they had dispensaries” which made people “pretty pissed off with the state and us” as they argued “you didn’t let me in.”
    • Garza next brought up Oregon, which had “no caps for how much canopy” licensees could use to produce cannabis, and the impression he’d gotten from Steve Marks, Oregon Liquor and Cannabis Commission (OLCC) Executive Director and CANNRA Member at Large, that there was “trouble beyond belief.” He believed the state's hemp law enabled growers in the southern part of Oregon (“not far from the Emerald Triangle”) to create “out of control” production that was “really disruptive.” In Washington, Garza said the intent had been “to just grow to meet the need of those over 21...so that we wouldn’t have the federal government step in.” This led to a policy of tracking and reporting canopy size, he stated.
    • He added that consumption estimates for the agency hadn’t included medical patients’ usage. Serving patients under the existing system “continues to be a struggle,” according to Garza, who’d heard that the regulated market wasn’t “making medically compliant product available like we had when it was unregulated.” Still, he believed that “a lot of medical patients” were having their needs met by the established market “but there are many who tell us that they’re not.” Garza openly wondered, “why don’t we just create medical clinics with respect to cannabis” dedicated to serving patients (“I don’t know why we can’t do that”). He compared vertical integration for dispensaries to when the “smallest of wine growers” were permitted vertical integration “back in the ‘60s and ‘70s.” Garza referenced the resulting variety of licenses for brewing, distilling, and wine making that were eventually established. 
    • Speaking to “the residency requirement, the out-of-state ownership” issues raised by WACA leadership “for years,” Garza claimed agency officials had been neutral on the topic as it was “an industry issue” where stakeholders were “fractured.” He contrasted this with alcohol industry representatives, who “kinda figured out how to work together.”
    • Garza brought up draft agency request legislation on novel cannabinoids to “reign in and regulate all [tetrahydrocannabinol] THC cannabinoids, not just delta-9.” He stated that the third draft of the request bill released on November 1st, along with a summary of its provisions and a one pager, would be “the last draft that we will do, but we’ll take your information into consideration.” Garza indicated that addressing delta-8-THC products being sold outside the regulated cannabis system was a priority for state officials. They’d talked with representatives of the U.S. Food and Drug Administration (FDA), he said, who had done “nothing.” Garza said the request bill was proving divisive, “but at the end of the day...anything with THC, 0.3% or higher, needs to be regulated, tested, allowed to be in the market, and remove the stuff that’s out of the I-502 market.”
    • Garza noted the work of CANNRA members as leaders on cannabis policymaking, and the participation of eight WSLCB staff members on “11 different special committees” organized by the group. He explained that he’d recently been speaking to regulators from Connecticut who were “just about to begin their adult use program” and wanted to discuss cannabis licensing.   
    • Returning to the subject of social equity, Garza---who had previously noted his family history with racial justice---reiterated that equity wasn’t written into initiative 502 and “there’s no doubt we missed that.” Staff first took action on the topic after passage of HB 2870 in March 2020, whereas Connecticut officials would “make half of their adult-use licenses available to social equity applicants.” He felt “states where there are a lot of communities of color...demanded that there will be social equity” in the cannabis sector “because of the wrongs that were done over the years.”
    • Believing Washington cannabis businesses were doing “a remarkable job,” Garza mentioned “one of the biggest retailers in the state” in Vancouver had told him of “hundreds” of retailers in the Portland area, relaying “most of ‘em are not doing well.” He said the licensee credited this to limits on retail locations which fostered “more viability than I see in Oregon.”
    • Garza stated that a conversation on WSLCB enforcement practices had begun years earlier with Christophersen and others, after I-502 called for a “strictly regulated” market. Commenting on “progress that’s been made” due to the passage of SB 5318 in 2018, Garza claimed there had been “significant changes” in the agency “culture” before acknowledging “isolated issues and problems” remained. He added that he’d heard from industry members that they could “feel” a difference in WSLCB enforcement.
    • The final topic Garza noted was the proclamation from Governor Jay Inslee requiring vaccination of state workers against the coronavirus by October 18th, which "really caused a lot of issues." He stated that of 342 employees at WSLCB, there were eight who left the agency, “six that separated, and two that resigned.” Another 18 staffers were “reassigned to other divisions” that didn’t interface with the public rather than get vaccinated. 
  • Garza spoke to a trio of questions from attendees on excise tax revenue, rulemaking, and enforcement against the “illicit market.”
    • Greg Haynes asked about “the taxes as collected,” particularly “where that money goes” as he believed that neither local governments nor WSLCB was being given sufficient funding. He acknowledged “all that money that’s being collected and everyone hears about it,” but “cities and counties” weren’t receiving it. Garza insisted, “If I woulda written that initiative I wouldn’t have given all the money to the state,” instead, he’d have apportioned it “to cities and counties just like the alcohol taxes were originally.” He noted jurisdictions “fought back immediately” in the form of bans or moratoriums on cannabis businesses which he attributed to insufficient revenue. Garza promised to give WACA members “a one pager that shows you what the budget of the board is” but agreed with Haynes it wasn’t enough. He blamed the wording of the initiative before admitting “there was only a small percentage that went” into the state general fund, and “what’d the legislature do? I think by threefold they increased the amount of that revenue that goes directly to them.” Deputy Director Brooke Davies noted the disbursement of funds was a frequent topic of discussion of the social equity task force and that legislative staff were preparing an “in-depth analysis” of cannabis revenue. 
    • Marco Hoffman, Evergreen Herbal CEO and Reimagine Wellness Co-Founder, was grateful for enforcement reforms and also curious about rulemaking engagement. “One of the nightmares that we all live,” he said, concerned “board interim policies and these emergency rule authorizations.” He equated the documents with "pulling a pin on a grenade and throwing it into our businesses" as they were routinely “not very well thought out” and lacked prior input by stakeholders, including “potentially the ability to improve upon them.” Hoffman asked Garza about the potential for engagement with licensees “before these policies get distributed and implemented.” Garza mentioned Kathy Hoffman---no relation to the questioner---the agency Policy and Rules Manager, as having improved rulemaking transparency. He found that events like deliberative dialogues, listen and learn forums, and webinars had increased stakeholder involvement “two and three times” over what it had been under Kathy Hoffman’s predecessor, Joanna Eide. Garza promised “to fix that” if it turned out “we’re missing that somehow.” He called attention to the announcement of the extension of temporary allowances for cannabis licensees due to coronavirus restrictions as evidence of staff responsiveness to business needs.
    • Chris Marr, Marr Government Affairs Principal Lobbyist and a former WSLCB board member, shared Garza’s enthusiasm for Kathy Hoffman’s work before suggesting agency request legislation be “subject to the same amount of prior-to-issuance” engagement. He then asked about enforcement efforts around “large scale interdiction” in the state, as he assumed that unregulated cannabis wasn’t “going all outside our borders” and could be sold in “a market here.” Marr wondered if increased enforcement was a possibility or whether “dynamics around social equity and...re-criminalization...take that off the table.” Garza didn’t think such enforcement should be abandoned as it “impacts” the cannabis sector in the state, but unlicensed grows in Washington state were “nothing like what we’re seeing in Oregon and California.” He believed federal interdiction efforts would focus there and “keep the spotlight off of us.” Nonetheless, Garza called it a “huge problem” that needed to be prioritized. “Remember the [Washington] State Patrol, a few years ago was given a couple million dollars to deal with the illicit grows in our state and maybe we need to reach out to them to find out what they’re doing.” However, he argued that licensees could also “grow it here hiding under the cannabis law and then send it to another state and get three and four times what it’s worth here, that’s typically what’s happening,” but overall such production was “not a big enough problem in our state as it is in others.”
      • Under the supplemental biennium operating budget passed in April 2020, the state patrol received $5,246,000 between fiscal years (FY) 2020 and FY 2021 for a “case management system” and for officers “to partner with multi-jurisdictional drug and gang task forces to detect, deter, and dismantle criminal organizations involved in criminal activity including diversion of marijuana from the legalized market and the illicit production and distribution of marijuana and marijuana related products in Washington state.”
      • For a time during the 2021 legislative session, the social equity bill HB 1443 included a provision which would have required the task force to consider the merits of recommending “Redirecting funds from the Washington State Patrol Drug Enforcement Task Force to the Cannabis Social Equity Program.” That provision was struck in committee by an amendment authored by Senator Curtis King, a task force member appointed to represent the Washington State Senate Republican Caucus. Senator King was among legislators invited to the WACA Fall Policy Conference and spoke later in the day.
      • On October 27th, WSLCB announced a license suspension for producer Emerald Flash which alleged, in part, that the license holder had engaged in diversion by way of “selling or providing to an unlicensed entity approximately 350 pounds of marijuana flower, worth between $700,000 and $1,000,000.” Questions have been raised about the basis for that estimated product valuation.

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