WACA - Legislative Preview Conference - 2022 - Legislative Roundtable
(December 13, 2022) - Summary

WACA - Legislative Preview Conference - 2022 - Legislative Roundtable
[ Event Details ]

Several cannabis retailers told lawmakers licensed businesses were diverting products to illegal cannabis markets while calling for enforcement, licensing, and reporting changes.

Here are some observations from the Tuesday December 13th Washington CannaBusiness Association (WACA) Legislative Preview Conference.

My top 4 takeaways:

  • Two Washington State Senators, Republican Chris Gildon and Democrat Derek Stanford, fielded questions from the breakout group Cannabis Observer was assigned to which included licensees and their representatives who touched upon diversion of cannabis, traceability, retail safety, taxes, and other business concerns.
    • Senator Ann Rivers had been scheduled, but was unable to attend the roundtable.
    • Ian Eisenberg, Uncle Ike’s Co-Owner and Craft Cannabis Coalition (CCC) Co-Founder, began by saying he’d witnessed the Seattle illicit cannabis market “explode last year…and it's, in my opinion, [licensee] weed going out the back door.” He attributed the trend to the Washington State Liquor and Cannabis Board (WSLCB) move to a Cannabis Central Reporting System (CCRS) instead of traceability software. Eisenberg considered the “budget the LCB had for the traceability program was so little there were no vendors, no software companies, that wanted the contract” which “led the illicit market to rebound in a massive way.” He candidly called it a rare circumstance of licensees “requesting more enforcement and regulation.”
      • Andy Brassington, Evergreen Herbal President and WACA Board of Trustees Vice President, seconded Eisenberg’s diagnosis, feeling traceability was “the elephant in the room.” He perceived CCRS to be better for “sales tax and revenue reporting” but an “unintended impact [was] the flood of black market product” coupled with “misplaced priorities” by WSLCB staff. Brassington wasn’t sure more regulations would help and advocated for leveraging existing rules on diversion to address “low hanging fruit on the enforcement side.”
      • Eisenberg felt WSLCB lacked the budget to act against licensees diverting product, but Brassington said officials only lacked the “will” to do so. Brassington felt licensed producers and processors had grown frustrated that the former traceability software, Leaf Data Systems, which “didn’t work…so we went to the self-reporting system which is…worse.” He argued that for other licensees “it used to be it's kind of difficult to fool traceability, and then sell your product out the back door,” but with CCRS “that barrier has disappeared.”
      • Gildon was inclined to cut regulators “the benefit of the doubt in thinking that… ‘this won't be an issue’” and that licensees would act in good faith.
    • WACA Deputy Director Brooke Davies turned to “potential solutions” including WSLCB Enforcement staff auditing reported data so that “at certain places like where you take a bunch of flower and turn it into an extract, if those numbers look strange, that might be something to go look at.”
      • Scott Atkison, Zips Cannabis and Canna 4 Life Owner, agreed and considered this a more “forensic accounting” approach using a “reasonableness test” for what producers and processors were entering and reporting to sell, or “how much power” they were consuming. Eisenberg asserted this was the same process used for bars, where regulators could “audit how much liquor you buy, and how much you sell.”
      • Gregory Foster, Cannabis Observer Founder + Citizen Observer, brought up how he was “pretty directly involved in the traceability work groups that the agency hosted, and what we saw is that we had recommendations as far as changing traceability from being a really intrusive seed-to-sale kind of approach, which you don't see in any other commodity anywhere.”His perspective was that WSLCB staff decided “we can't really…make the jump to that smaller [traceability system], so we're gonna do our own in-house system…with the IT staff [and budget] that we have.” Foster suggested the senators were hearing “the ramifications, one year on, with that” decision while also urging participants to explain what they wanted to see done differently. His opinion was that there weren’t “any traceability seed-to-sale vendors…that are around anymore. We've been through them all…and they all kind of suck in different ways.”
      • Brassington wanted enforcement based on whether licensees with large canopy limits were reporting low sales numbers: “start with the easy projects and you just dive in,” he said.
    • Stanford, Vice Chair of the Washington State Senate Labor, Commerce and Tribal Affairs Committee (WA Senate LCTA) which was reconfigured and renamed for 2023 as the Washington State Senate Labor and Commerce Committee (WA Senate LC), asked about the current police and enforcement response for suspected unlicensed sales. Eisenberg responded that police were unlikely to prioritize the call, explaining that if “they're not going to get prosecution…they don't want to do the arrest.”
      • Eisenberg thought that the state had a “pretty good system, and we’ve slowly been rolling back a little bit to the wild west in some ways.” He argued, “because there's fewer licenses the value of a retail license is very high. We're not going to sell to minors; it's too much to risk.” Any retailer willing to sell “out the back door” could forgo cannabis taxes and “drastically” undercut retail prices, acknowledged Eisenberg, however he believed requirements around security cameras and packaging requirements identifying the retailer made this less likely. “But in our parking lot when somebody has turkey bags full of weed” there was no way to know where it came from, he added, claiming these individuals would sell to minors or his customers. Stanford asked how additional licensee enforcement on diversion would impact illicitly grown cannabis from other states, but Eisenberg didn’t perceive that as a significant problem.
      • Shannon Vetto, Evergreen Market CEO and WACA Trustee, said they’d attempted to use “proxy data” of how much less legal cannabis was being sold “relative to other product types…we tried to, within a group of retailers, create that data set; it appears that it is definitely less…flower sold and not as much less on edibles and concentrates, which are much harder to produce.” This indicated to her that the demand for cannabis flower was being met outside the legal market.
    • Paul Brice, Happy Trees Owner and “advisory community member” of the Washington State Legislative Task Force on Social Equity in Cannabis (WA SECTF), attributed some cannabis sales to plants from medical patient cooperatives which he remarked were “starting to pop up again” along with unlicensed dispensaries with “green crosses.” He accused patients with “home grow” rights of selling their medical cannabis, and that “until the state has some type of discussion around trying to push that back” the situation would mimic “bodegas popping up everywhere” in New York. Several participants pointed out that in August 2022 WSLCB Enforcement had “bust[ed] a collective that had been operating” for “years,” which Brassington said “drags us all down.”
      • Eisenberg added that WSLCB staff had always focused on “little things” businesses weren’t complying with such as advertising violations.
      • Referencing comments by WSLCB Board Member Jim Vollendroff on raising taxes for cannabis concentrates, Eisenberg was of the mind the policy would “flip the switch, and then the concentrates will be higher on the illicit market.” Others warned such unregulated concentrate production was associated with explosions and fires.
      • Moreover, with many Seattle area retailers having the same inventory, Eisenberg found customers were more likely to compare products online and shop based on price.
      • Robert Mead, Sound Cannabis CEO, joined the conversation to affirm that tax and compliance costs (which “does us no good”) put them in competition with unlicensed cannabis sales. He debated with Zips Cannabis Co-Owner Brian Jennings and other retailers in the group whether limited retail options were contributing to unregulated cannabis sales.
  • Representative Kelly Chambers and Representative-elect Sam Low, both Republicans, were asked about committee assignments, cannabis business safety and security, enforcement practices, and social equity in the industry.
    • Chambers introduced herself by mentioning her upbringing in Tacoma, and how after four years on the Washington State House Commerce and Gaming Committee (WA House COG), she would be serving as the Ranking Minority Member of the Washington State House Regulated Substances and Gaming Committee (WA House RSG). She also mentioned being a legislative appointee to WA SECTF where after “listening to all that” she viewed cannabis policy as less “monotone” than some committee assignments, leaving her “excited to serve another term.”
    • Low was going to be a freshman legislator for the 39th district, and would continue representing District 5 on the Snohomish County Council. He mentioned dealing with cannabis issues there, and on the Lake Stevens City Council “my first vote on the city council…I got sworn in and then voted to allow processing and retail sales.” He explained that he looked forward to learning and “I want to work with you.”
    • Bringing up legislative committees, Chambers described how assignments “have not been finalized on the Republican side” but her assumption was that committee size mattered; “ones where you have a wide range of votes” were likely to “see the most policy action this session” and “something to look out for.”
      • At publication time, committee assignments for the 68th Legislature starting on Monday January 9th had not been shared publicly.
    • When Chambers brought up public safety, Vetto asked how the issue was “playing out” for lawmakers. Chambers mentioned some Democratic legislators had told her they “overstepped” on a 2021 law involving police vehicle pursuits, but she wasn’t going to “bet” on whether the law would be changed in 2023. Vetto asked about cannabis retail robberies in particular, and Chambers encouraged her to watch both WA House RSG as well as the Public Safety Committee (WA House PS). Mentioning the 2021 State v. Blake decision, Chambers knew that would be on the agenda for legislators.
    • Chambers mentioned safety trainings and security assessments arranged through WSLCB and asked if anyone had used them. Eisenberg said they had been doing everything that had been suggested, except that “some of the recommendations were so expensive it wasn't realistic.” Eisenberg urged federal banking reforms to move cannabis retail away from being a cash-only business, along with changes related to the State v. Blake decision. He claimed increased “snatch-and-grabs from addicts trying to fuel their addiction” were related to changes around police vehicle pursuits, contributing to the uptick in offenses. Chambers discussed being interested in backing Medication-Assisted Treatment (MAT) programs rather than “paying for needles for users.”
    • Vetto found the security assessments included some good “low hanging fruit that we didn’t think about,” and that stores in Auburn and Renton had suffered robberies involving cars ramming shops in October before she’d been able to install bollards. She agreed that being able to accept credit cards would reduce cannabis stores as a “hard target” for robberies relative to other businesses.
    • “Are you tracking [the] age of suspects?” Chambers asked Eisenberg, who replied they hadn’t been, but his impression was that they were “very shockingly young.” He chalked it up to a pattern where “nobody’s scared of getting arrested anymore…there's no fear of God.”
    • Eisenberg described how a “dedicated detective” for cannabis robberies in the Seattle Police Department had helped but “but then with the shortage of police staff, she's back doing patrol, a senior detective.” Chambers noted Pierce County “doesn't even have a drug task force anymore.” Low agreed that law enforcement staffing challenges were evident in Snohomish County as well partly because the positions were not like a “fry cook” who could be “replaced in 24 hours”; training and accreditation for officers could take “18 months.” Chambers had seen officers make “lateral transfers” to better paying jurisdictions or leave the state entirely. Valuable “institutional experience” in policing that couldn’t be replicated was being lost, something she viewed as a “a disservice to taxpayers” who paid for law enforcement training. 
    • Bassington turned the conversation to “enforceability” and how the “black market” for cannabis in Washington was “terribly undermining” tax revenue and licensed businesses. Eisenberg argued, “we don’t think it's coming from illicit grows,” rather the change was allegedly due to CCRS making diversion easier.
      • Chambers was aware of reports of illicit grows in Oregon, but Jennings insisted the same operations weren’t happening in Washington: “all of the weed’s coming from inside our system…but if there was a shortage the black market would evaporate, because drug dealers are lazy.”
      • Brassington repeated his suggestion that WSLCB should be evaluating canopy more closely to find possible malfeasance. Low shared a belief that prosecutors “aren’t doing anything” since there had been “such a decriminalization of drugs" that police were inclined to “focus on rapes and murders and all the other things."
    • Brice mentioned social equity, having found local officials “really don't have any knowledge, even of social equity, or these licenses going out” and wondered if the legislature could do more to inform jurisdictions about them. Chambers felt the best way to incentivize local governments to site social equity stores was teaching local leaders about cannabis retailers and letting them tour existing operations.
      • On December 21st, Senator Rebecca Saldaña pre-filed SB 5080, “Expanding and improving the social equity in cannabis program,” at the request of WSLCB.
  • WACA Executive Director and Lobbyist Vicki Christophersen and Deputy Director Brooke Davies spoke to participants in lieu of WA House Democrats who had a caucus scheduled at that time, providing the organization’s positions on tetrahydrocannabinol (THC) content in hemp products as well as their expectations for traceability.
    • For House Democrat perspective, hear WA House RSG Co-Chair Shelley Kloba’s comments to the Cannabis Alliance in October 2022. Washington State Department of Agriculture (WSDA) Policy Advisor to the Director and Legislative Liaison Kelly McLain provided remarks earlier in the day that elicited several comments of concern over what level of THC, if any, should be permissible in hemp products.
    • Eisenberg felt that “a lot of the hemp flower, I've seen and smoked some of it, it's not low THC. It's…five, six percent THC. It's like the pot we had as kids.” Several breakout group members speculated that cannabis with high levels of THC could be moving through customs in Washington ports under the guise of hemp, though Davies knew port officials had previously made large seizures of cannabis.
    • Foster raised the issue of traceability because “doing some more forensic examination of the data” was something “I'm pretty interested in.”
      • Christophersen talked about traceability as a “storied conversation over the years,” but more recent discussions “were really focused on…what the LCB needs is dedicated staff…regardless of the system, have the forensic capabilities to go in and find…where the leakage is happening.” In her view, “the legislature could allocate a couple hundred thousand dollars” for staff. Eisenberg recognized it was a difficult market and “you can't blame them really,” but insisted there needed to be greater enforcement. He relayed how they’d previously lobbied for the Washington State Patrol (WSP) to track robberies.
      • Foster pointed to problems with communication to third party integrators about CCRS updates and hoped that WSLCB Chief Information Officer George Williams would have opinions on “modernizing the system.”
      • Brice said “two years ago we had roughly 1,200 [producers and processors] and that went down…a little over 400.” He wondered how much diversion might be the decline of these licensees “as they are…cannibalizing themselves down” and “liquidating.”
      • The group discussed how to get the best picture of the market from cannabis sales and CCRS data. Davies suggested an “audit” of which cannabis facilities were active: “they just…show up randomly.”
    • Christophersen brought up the WACA legislative and regulatory agenda for 2023, and how she had been talking to WSLCB board members about how it had been “ten years” of “costly and duplicative” rules. She advocated for a broad review of rules to see which ones were still needed and claimed “there's a lot of interest from the agency in that.”
      • Eisenberg hoped for the ability for retailers to “sell below cost,” in order to “get rid of back stock” which was permitted for alcohol, but “never moved over to the pot side.”
      • Christophersen acknowledged that WACA members were “participating” in an effort for an omnibus bill but saw the odds of something all groups supported emerging to be low. She nonetheless anticipated “key lanes” on topics such as interstate commerce, hemp in food, out-of-state ownership, and hoped a “lot of synergy” would lead to multiple single-issue bills.
        • Senator Rivers pre-filed SB 5069, “Allowing interstate cannabis agreements,” the first introduction of an interstate commerce trigger bill in Washington State history.
  • Republican Senator Curtis King and Democratic Senate President Pro Tempore Karen Keiser were joined by WSLCB Director of Enforcement and Education Chandra Wax to address issues such as enforcement, “federalization,” and raising the cap on cannabis licenses that can be owned.
    • On December 30th, Keiser pre-filed SB 5123, “Concerning the employment of individuals who lawfully consume cannabis,” which was scheduled to be heard in WA Senate LC along with SB 5069 and SB 5080 on Tuesday January 10th.
    • Brassington initiated the conversation by saying “let's remove the residency requirement, it's unconstitutional, let's just get that done.”
    • He then mentioned a desire to “choke down the black market, it’s undermining the entire state system." Members described diversion in similar terms as in past panels, including lacking local policing and problems with traceability. Eisenberg expected more enforcement, and Brassington highlighted the benefit of forensic accounting audits of producers and processors.
      • Keiser had heard complaints about CCRS from other breakout groups whose participants reiterated the need for something stricter than self-reporting. King asked for clarification that WSLCB “isn’t doing inspections,” to which Eisenberg said they were “all complaint driven.” Brice talked about former heavy enforcement by WSLCB in his store and Keiser recalled the legislative mandate from 2019 to “transform enforcement to a formal consultation” and have their relationship with licensees be more “productive.”
      • Wax agreed that her staff had been focusing more on education, but “within the last year we started recognizing the issue that over canopy was having on the market” and agency leaders were trying to more consistently manage cannabis canopy protocols. “Folks that are then over canopy are going to employ all of their political prowess, and tools, and influence,” she cautioned, before noting there was an open canopy rulemaking project at WSLCB.
      • Wax described how the Cannabis Examiners team had been intended to conduct the type of audits mentioned by Brassington, “but what ended up happening is we…ended up being a customer service phone booth” for licensees needing help with CCRS. Since moving the examiners to her division, “we’re starting to be able to use that resource to do that work” and have compliance staff in “one team” separate from enforcement officers. Brassington called the changes “encouraging.”
    • King, the Ranking Minority Member of WA Senate LC, asked for thoughts on how legislators might prepare the state cannabis market for federal reforms, expecting Washington’s sector would “get creamed” by competition from other states.
      • Eisenberg advised ending the residency requirement and then raising the cap on individual license ownership as a way for companies like his to “grow the infrastructure” that would allow them to compete in other markets. Brassington concurred, and included interstate compacts on that list. Wax stated that the ​​Cannabis Regulators Association (CANNRA) had also been working on “model policies” on the topic. Keiser believed there would be legislation to allow out-of-state ownership. King asked what store limit would be preferable. Eisenberg called himself an “evolutionary guy” and felt growth to a cap of eight licenses would be good, whereas Vetto suggested “there are people operating groups that are larger than that” while concealing the fact with “messy GAAP [Generally Accepted Accounting Principles] tables.”
      • Vetto considered "nationalization" of cannabis markets was underway but thus far Washington was "highly insular" and "oppressive," leaving licensees ill-prepared for a federal change in cannabis’ status. Eisenberg added a lack of vertical integration to this argument (“it makes us different than other states”) which impacted “institutional knowledge” and what Vetto called “scale limits.” Keiser saw this as “part of the original legalization law” that hadn’t been “changed since the original, and as you know, we were all very cautious back then.” She didn’t expect the U.S. Congress would act on cannabis in 2023.
    • Vetto remarked there was more “unification” among cannabis associations than ever before which Brassington observed was happening “when the challenges are greater than ever before.”
    • Keiser brought up that she was drafting an “organized retail theft bill that will include cannabis” for the 2023 session.
    • Eisenberg made a final mention that he was giving away “fentanyl test strips” in his store, but the practice was illegal and legislative efforts in 2021 had gone “nowhere.”

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