WA SECTF - Work Group - Production - Public Meeting
(June 21, 2022) - Summary

The work group discussed the costs and social equity implications of either a new agriculture program for cannabis production, or a “lift and shift” of the existing WSLCB program to WSDA.

Here are some observations from the Tuesday June 21st Washington State Legislative Task Force on Social Equity in Cannabis Regulation of Cannabis Production Work Group (WA SECTF - Work Group - Production) Public Meeting.

My top 3 takeaways:

• Co-leads for the work group gave some background on the recommendation topic they would be considering, conversations they’d had with agency staff, and general points on equity impacts a move could potentially precipitate.
  • Jim Makoso, Lucid Lab Group Director, referenced the enacting statute for the task force, RCW 69.50.336, to explain why WA SECTF leaders had “formed this work group.” The area they were required to offer recommendations on by December 9th included Section (9)(d): “The social equity impact of shifting primary regulation of cannabis production from the board to the department of agriculture [WSDA], including potential impacts to the employment rights of workers” (audio - 2m).
    • A week after the meeting, on June 28th, Makoso was elected co-chair of WA SECTF. On July 18th, co-chair Representative Melanie Morgan tendered her resignation as the other co-chair.
  • Micah Sherman, Raven Co-Owner, Washington Sun and Craft Growers Association (WSCA) Board Member, and a task force appointee, stated that the group would inform the recommendations presented to the full task force as well as “bring up all of the really important questions that we might have” on the issue. Rather than try to solve every challenge, he emphasized “it’s totally OK to bring up something that is unresolvable in this moment” so that lawmakers could consider it “down the road.” Speaking to “the potential employment rights of workers,” Sherman framed the history of the requested recommendation, explaining that it had been drafted when agricultural workers “had different overtime rules than non-agricultural workers,” but those rules had changed at the start of 2022 (audio - 2m).
  • Sherman remarked that he and Makoso had been in a lot of internal conversations with state agency representatives ahead of the public dialogues “so that we can get…that draft outline together.” After work group members’ comments, they would “really fine tune how everyone feels about everything” at a later meeting before showing the drafted recommendations to WA SECTF, he said. Makoso would offer more specifics on the agency discussions and then Sherman would add “broad points" that he’d noticed before a “conversational part of the meeting” (audio - 1m).
  • Makoso noted the difficulty of the “pretty broad question” and determining "impacts on social equity for a hypothetical situation." He commented that it was “very ambiguous” and there had been "many, many meetings as a team" to even understand the question (audio - 12m).
    • Staff and the co-leads had distilled the recommendation down to mean several things:
      • Considering the structure of existing production regulations at the Washington State Liquor and Cannabis Board (WSLCB)
      • What “would or could potentially move over to” being regulated by WSDA, and what needed to be considered in order to do that
      • “What would be the social equity impact" of that hypothetical move
    • In discussions with WSLCB and WSDA officials, Makoso said both agencies wanted work group and industry members to understand “what each agency is already good at” to see “what makes sense to stay within their jurisdiction.” Agency officials hoped the work group would recognize what agency staff “want to be a part of their purview because it already is,” or would want to take on as part of a possible shift in production regulation between agencies.
    • As a licensed processor, Makoso had come to understand cannabis cultivation better, he told the group, and why authority over agricultural practices had been given to a commercial regulator like WSLCB. The justification he’d heard “time and time again [was] ‘because we wanted to make sure we were keeping people safe.’” The "public health and public safety" of “the first mover as a state” in legal cannabis was important, Makoso observed, and the WSLCB mission was “to keep communities safe.” But now that officials had “the benefit of hindsight and a little bit more background," he thought it was reasonable to think about what aspects of cannabis cultivation “should even be considered being moved over” to WSDA. Makoso shared the WSDA mission, “Through service, regulation, and advocacy…WSDA supports the viability and vitality of agriculture while protecting consumers, public health, and the environment,” and vision to ensure “Agriculture thrives across Washington, contributing to the health of the state's people, environment and economy.” 
    • Makoso brought up other stakeholder groups besides the agencies, stating that he and Sherman had reached out to their networks to “understand what some of their concerns were.” This led to identifying things which were “a part of this overall conversation,” he indicated, like how they would “put a[n] equity scope on all this.” Makoso had found that industry players were still debating what equity meant “from an industry standpoint,” and how would the move “benefit or…potentially cause harm to” an equity program.
  • Sherman mentioned that “the main thrust of social equity thus far” had centered on ”getting social equity applicants licenses” but a recurring point was made about “the actual marketplace” that they wanted to invite applicants into, and whether it was “able to produce equitable outcomes—at all" (audio - 4m).
    • The report for the task force would weigh how to give equity applicants “the best opportunity they can to be successful" going into an “economy where a majority of the people that have participated in it have not been successful regardless of their…status and privilege in getting those licenses.”
    • Sherman remarked that the Licensing Work Group had struggled with this question as they looked at asking the task force to recommend additional processor licenses as work group members felt they were “not viable.” He was still negotiating how to “think about this potential regulatory shift in that context,” and a recommendation’s eventual impact on the cannabis producer market.
    • Sherman’s final point was how a shift in regulations from WSLCB to WSDA impacted the “eventual federalization of the cannabis economy” and that any feedback they gave the wider task force should be constructed to “ensure that equity applicants are in the best position” once that occurs. “The real big opportunities are going to be between now and then,” he concluded, wanting recommendations that made a “pathway” to a future with equitable opportunities “as often as possible.”
      • On April 26th, WSLCB board members discussed getting public input on federal legalization through a “world café” event format.

• Work group members talked over issues like market conditions, cannabis as agriculture, stakeholder views, shared responsibilities, agricultural cooperatives, and resources for producers. 
  • Jessica Tonani, Verda Bio CEO, started off by considering federal legalization, remarking that a “transition to federal legalization” might be too big for them to consider compared to the existing “closed market” with a “cap on it.” She speculated that there could be "somewhat of a land grab, once federal legalization occurs" as companies vied for a portion of the national market. In this event, there ought to be “grants set up so that people can expand farming capacity” or WSDA support to “secure pesticides, growing practices…and import/export…things that they do on standard ag crops,” argued Tonani (audio - 6m).
    • Tonani advised the recommendations cover a “short term path, and then maybe a post-legalization path, as well,” as she found they were “slightly different.” She reiterated the central question for both existing licensees and prospective equity applicants concerned what the department could do to assist the cannabis sector.
    • Makoso acknowledged “the time horizon," but some actions on equity could happen “immediately…like access to licensing” which “LCB is already…making headway on.” He felt the “intermediate” stage would begin “once we get these licensing going,” and involved options like the technical assistance (TA) grants, mentorship opportunities, and other support for equity licensees which had been raised in the TA and Mentorship Work Group. “Longer term is more systemic,” said Makoso, “what is equity and how…can you create an equitable market.” With better definitions, he argued the group could “think as big and outside of the box” as possible, but only with “a fundamental understanding of what equity means.” Makoso wanted the group to imagine an “ideal” program for cannabis production “and then go from there.” He encouraged work group members to contemplate all three so they could help the task force “note” problems for their report, not “solve any problems, that’s not our goal.”
    • Tonani was a panelist in a deliberative dialogue on cannabis impairment on April 27th.
  • Lara Kaminsky, Cannabis Alliance Government Affairs Liaison, pointed out that the WSDA mission statement included “advocacy.” Since the state was already “an agricultural powerhouse” and some of the state’s “commodities serve the world,” she didn’t see why it should differ “when it comes to cannabis.” Her ideal system leveraged WSDA officials’ knowledge and resources to “help us produce the highest quality products that are actually sought” worldwide. She wanted research and education to “get into the hands of every farmer” and not just the companies that could afford to invest in research. This had been the idea behind legislation to establish a cannabis commodity commission, which Kaminsky testified in support of on January 11th. She stated a commission would be “driven by the farmers of that commodity” leading to additional research on pest control and helping producers grow “higher quality products.” Kaminsky believed this both helped existing licensees and better positioned equity licensees in the event producer licenses became available through the WSLCB equity program (audio - 9m).
    • In Washington state, a top challenge was that “a lot of folks don't consider cannabis agriculture,” said Kaminsky, pointing to a law which differentiated the crop from other commodities and, “for tax purposes said that cannabis is not agriculture.” She advocated for changing this to stop producers from being “hit” with local ordinances that were “strange” and further treated cannabis farming as an industrial activity.
      • Find out more from the agriculture tax guide section on ‘Marijuana’ updated by the Washington State Department of Revenue in April 2020.
      • “Cannabis as Agriculture” had been listed among the Cannabis Alliance legislative priorities.
    • "WSDA has some very, very strong skill sets" for regulating agriculture, Kaminsky commented, wanting regulations that “lean in” to those abilities the way they did for other “adult use” crops like “wine grapes or hops.” Sherman responded that they understood WSDA to have oversight of “the agricultural component,” but “when the wine grape becomes the wine,” WSLCB regulators covered the “product, sales, and distribution.” Hemp Program Manager Trecia Ehrlich affirmed that WSDA staff regulated, graded, and inspected hops and grapes which were then sold in the “domestic and international marketplace,” but she warned the “utility” of these practices for cannabis were "diminished by the…looming cloud of federal” prohibition. With hemp, she reported having encountered “a lot of confusion about edibles” and what could be sold in Washington or exported to another state, and she expected a similar challenge with export of cannabis edibles following legalization. Ehrlich thought support programs for grapes or hops had maximized their “utility when the market is obvious.” At the moment, the market was diverse for hemp, and narrow for cannabis, she added. 
      • Ehrlich also reviewed the WSDA role in regulating hemp and certifying hemp products at the Washington CannaBusiness Association (WACA) Spring Meeting on June 15th.
    • Makoso recognized that Kaminsky was articulating a “potential benefit in creating a more equitable market in that research and investing in cultivators and farmers”---which happened “through WSDA” for other crops—would lead to “more equitable outcomes” in the cannabis industry. He felt cannabis as agriculture mattered, but was a “separate part of the conversation.”
  • Paul Brice, Happy Trees Owner and “advisory community member,” asked for more information on stakeholder feedback, and where the “majority [was] leaning to.” He hoped to get a sense if established producers would prefer oversight by WSDA or WSLCB regulators (audio - 3m).
    • Observing that “different people have different opinions," Makoso said the suggestion of changing regulators was “contentious” and elicited frequent questions about differing fees or services. Ehrlich clarified that WSDA did “have pay-for-service programs” but that “it would not be a requirement of” a program “per se, there’s room for you to dream.”
    • The social equity perspective of stakeholders Makoso had spoken with was that “a more robust market where there is more support for cultivators” led to “a more equitable program.” The question for existing licensed producers became whether a shift from WSLCB to WSDA would increase or “hamper” support options, he noted.
  • Crystal Oliver, WSCA board member and former licensed producer, mentioned “gaps in regulatory oversight” while asserting state officials had “largely ignored risks for cannabis producers among “insects, plant pathology, pollen, land and water usage.” In order to both “protect our natural resources and, really, positioning more of Washington’s cannabis producers for success, including new equity licensees,” regulations should mitigate risks - which she believed WSDA personnel were better equipped to do (audio - 1m).
  • Tonani asked if this was an “all one or the other situation,” or if the agencies could share responsibilities over cannabis production, as both institutions had “aspects that could be advantageous” (audio - 8m).
    • Makoso didn’t see their possible recommendation being an “either/or” situation and invited WSLCB Director of Policy and External Affairs Justin Nordhorn to speak. Nordhorn deemed it “a complex issue" in part because the voter initiative legalizing cannabis “called us out” specifically. He agreed that WSLCB staff had not developed effective regulations around cannabis agriculture.
    • Nordhorn felt that social equity was a “complicated” perspective through which to approach this shift. He claimed that following the initiative the number of retailers and producers had been limited based on agency official “assumptions” about reasonable access and needing only “100 producers and 100 processors.” But there’d been a public push to not “leave the little operations out,” which led the agency to reconsider in order to “curb illicit market activities.” Nordhorn wondered if treating cannabis as agriculture would increase market consolidation, and how that might alter equity within the market.
    • Nordhorn speculated about the impact shifting regulations to WSDA would have on “manufacturing and logistics,” noting that for alcohol and tobacco there were “far more” retail outlets than producers, but this wasn’t the case for cannabis. Would a move to WSDA “make sure that there’s an opportunity for folks to enter the business where they want to,” he asked. Nordhorn sounded confident WSDA regulation could better regulate “the natural resource issue, but is that going to add cost,” as Washington was the cheapest “state in the nation” for cannabis licensing.
    • As for hops, WSLCB staff had no regulatory role until “it's being brewed into beer” and other crops for wine or spirits were the same way, Nordhorn told the group. “That seems to be working,” but those crops weren’t regulated as “raw material,” he cautioned, while cannabis as “raw material can be smoked and that is a regulated product.” Chuckling, he wasn’t sure two work group meetings would be sufficient to determine whether a shift in regulators furthered “our social equity goals.”
  • Oliver encouraged a “systems-based approach to regulation,” which she thought WSDA leaders could better handle compared with the WSLCB “one size fits all approach.” The latter approach avoided “site-specific production systems” for “optimal management” of different types of production facilities, she suggested, using year-round indoor or seasonal outdoor sites as examples. Dedicated regulations and support for “a competitive, diverse, and equitable market” of “small, independent producers” in the cannabis sector was important to Oliver (audio - 1m).
  • Ehrlich returned to the open question of “how much does it cost" for WSDA to regulate cannabis production, mentioning that costs for regulation had been “embedded” in the laws “that produced these programs.” This resulted in her wondering if WSDA would receive “part of that tax” for regulating production which had been allotted to WSLCB. With hemp, she commented that it was “a fee-for-service program because hemp isn’t really collecting any taxes.” She added that “costs change when the federal government gets involved…because we had more duties.” Legislation moving authority for regulating production would need to address how WSDA would pay for those activities, Ehrlich argued, be it through fee collection from businesses or a portion of cannabis excise tax revenue. And the same would need to be done for out-of-state cannabis following national legalization, she continued, as costs “would have to be determined" contingent upon the "revenue, the taxation, and the type of program that" any law enacted (audio - 3m).
  • Kaminsky found “that cost question” was key and wondered if “a cost model” could be developed based on WSDA officials taking “over the growing regulation piece up until the product is sold to be consumed.” She anticipated that this occurred around the point when cannabis flower was packaged “so there is a line in the sand” when harvested plant material became a product regulated by WSLCB staff (audio - 7m).
    • Additionally, Kaminsky wanted to know how WSDA regulated “agricultural co-ops.” She wondered if a cooperative business model could make cannabis producers “more viable” because some co-ops had staff dedicated to marketing and distributing member products. Feeling this was a strong model for some farmers, she was curious about who at WSDA regulated them and “roadblocks” to cannabis being similarly regulated. Ehrlich’s understanding was that “individual businesses are…regulated by the WSDA and they can choose to form cooperatives” where costs varied based on the agricultural commodity. She believed that “co-op or food hub models” still required individual members to have crops graded and inspected. Acknowledging that the department had “marketing assistance,” Ehrlich said sales remained in “the hands of the producer.”
    • For Makoso, “the precedent for different agencies having different aspects of regulatory oversight” was set for cannabis, as WSDA was involved in edibles processing while WSLCB retained oversight for packaging and labeling. Tonani stated that she knew “a number of the co-op people,” and that some were “just marketing” while others partnered on processing facilities. She offered to connect interested parties like Kaminsky with “the apple or hops guys.”
    • The Northwest Agriculture Business Center (NABC) offered resources and links around cooperatives.
  • Tonani highlighted uncertainty around hypothetical social equity applicants for producer licenses, wondering if they were likely to be experienced or novice growers. As her business dealt with both cannabis and hemp producers, she’d seen hemp producers use “lower cost chemicals, same ingredients, they just don’t have the green tax on them.” Tonani attributed this “sophistication” to having “prior agricultural knowledge” which could help an equity licensee “on the agricultural side” (audio - 2m).
  • Brice shared the view that inviting more applicants to the producer market could “get out of your guys’ hands real fast,” adding “there’s a reason why some states only allow a handful of grow licenses for the whole, entire state” (audio - 1m).
  • Winding down the discussion, Sherman indicated what they’d heard would be organized into talking points for an “in-depth conversation” at the work group’s next meeting. He requested additional information on the topic be sent directly to the work group by emailing staff for consideration and asked for final remarks or open questions from members (audio - 2m).
    • Because cannabis was “a federally illegal impairing substance that people are growing,” Tonani expected “tight” oversight to continue, but encouraged a balance with “agricultural success” which WSDA representatives could have a role in (audio - 1m).
    • For Ehrlich, WSDA had many “wonderful programs,” from marketing crops around the country and world to plant pathology, and some families had been farming in Washington state for generations. So far, she had seen hemp farmers “need more hand-holding” and that the newer crop necessitated “more resources" and education by the department. Ideally, Ehrlich would want “a knowledge share" between licensees, WSLCB staff, and representatives of WSDA (audio - 3m). She subsequently added that the group should “look into” the Healthy Environment for All Act (HEAL Act) as it was based on “doing environmental justice work,” specifically with Washington farmers. Ehrlich made clear she wasn’t deeply familiar with the law, but wanted to “throw it in there” when looking for an ideal system to create opportunities for equity licensees in the cannabis production space (audio - 1m).
    • Nordhorn thought “if you're dreaming about…big changes" it was important that the task force recommendation make clear whether they recommended a new program or a “lift and shift" of the existing program from WSLCB because the timeline for those actions would have varying “implications for social equity.” As for federal legalization, "I would caution folks on assumptions” about how prepared the state was for such a change, Nordhorn said, offering the example of whether WSLCB was “going to be able to interact with the other systems in the state” or with “track and trace” software in other states. Nordhorn doubted a national cannabis system would start “wide open, because that’s not what we’ve seen” in federal legislation on the topic (audio - 2m).
    • Brice felt that if WSDA leaders could “categorize” social equity growers—he believed there were five out of “1,200 active licenses” that were “Black minority” producers—it could help “add a couple more to that list” (audio - 1m).
    • Kaminsky repeated her call for a cannabis commission as a helpful “quasi-governmental entity…within the WSDA” furthering the relationship between farmers and the department. Furthermore, she believed that an institution “driven by the farmers” would produce more useful information than “an external agency that thinks they know what should be done.” Kaminsky said funding for the commission would be based upon how much a producer sold, “so in that regard, it’s equitable.” She was also sure it would help “every farmer in the state” in the event of federal legalization (audio - 2m).

• Task force staff Manager Anzhane Slaughter reviewed upcoming events, including the likely last production work group meeting on Tuesday July 26th (audio - 1m)
  • After noting the next full task force meeting on June 28th, she encouraged people to follow their website and sign up for the WA SECTF email listserv.
  • Makoso wrapped up the meeting with a mention that he and Sherman would continue conversations with representatives of the relevant agencies and “all interested parties” to inform the task force’s report. He anticipated “one more meeting,” later announced for Tuesday July 26th (audio - 1m).

Information Set