WSLCB - Work Group - Cannabis Potency Tax
(August 22, 2019) - Summary

The legislature asked the agency to explore “varying the marijuana excise tax rate based on product potency” and will be assisted by a broad spectrum of voices and BOTEC Analysis.

Here are some observations from the Thursday August 22nd Washington State Liquor and Cannabis Board (WSLCB) Cannabis Potency Tax Work Group meeting.

My top 3 takeaways:

  • The WSLCB’s Cannabis Potency Tax Work Group was established to meet a legislative mandate to “determine the feasibility of and make recommendations for varying the marijuana excise tax rate based on product potency.”
    • The interim study was first publicly mentioned by WSLCB Director Rick Garza during the May 15th Executive Management Team (EMT) meeting. WSLCB Director of Legislative Relations Chris Thompson was assigned responsibility for the project and provided progress updates during the July 10th and July 24th EMT meetings. Thursday August 22nd was the first meeting of the new work group.
    • The interim study was requested by the legislature in a proviso added to the biennium budget. According to Thompson, the proviso was introduced somewhat mysteriously at the request of “one member” of “one caucus.” In May, Garza similarly characterized the provenance of the study: “There was a legislator in the Senate who had heard discussions about potency tax and said, ‘Hey, maybe that’s something to consider.’”
    • Unlike some studies requested by the legislature, this interim charge was appropriated $100K in funding allocated from the dedicated marijuana account. In part, the funding has been budgeted by the WSLCB to pay for a consulting firm to help provide “technical research and analysis.” After issuing a request for proposals (RFP), BOTEC Analysis was declared the successful bidder and awarded the contract.
    • At the beginning of the meeting, BOTEC Managing Director Sam Hampsher was asked to detail his organization’s responsibilities and provide a frame for the work group members to consider the problems before them.
      • The meeting handout outlined BOTEC’s parallel work stream: “Engage an independent consultant to examine the feasibility of changing Washington’s current cannabis excise tax structure to one based on potency rather than sale price. Intended Outcome: A report to be shared with the Work Group before a final report is prepared by LCB for the legislature.
      • BOTEC’s independent feasibility study would explore operational implementation. Hampsher would manage a group of researchers to document anticipated costs and claim values to be gained. The consulting firm planned to provide a report to the Cannabis Potency Tax Work Group in early October.
      • Hampsher provided a high-level overview of the theoretical construct to vary excise tax rate by potency of product. A potency tax could be applied in three ways, or any combination thereof:
        1. By tetrahydrocannabinol (THC) concentration
        2. By product type
        3. By potency ranges
      • Hampsher suggested a tax on THC could be structured to encourage purchase of cannabis products with measurable cannabidiol (CBD) profiles.
      • Hampsher likened the approach to some methods of taxing alcohol products, and said Illinois and Canada were adopting methods of taxation by potency for their cannabis marketplaces.
      • Hampsher indicated one motivation for taxation by potency emerged from public health researchers who associated harms with high-potency, low-cost products.
  • The work group was composed of a broad spectrum of state, tribal, and local officials; cannabis industry representatives; public health researchers; and prevention community advocates.
    • In July, Thompson reported he had invited “approximately 15” people from “a wide range of perspectives and organizations, external and other state agencies” to participate in the work group. The group convened with 26 members including 18 people present and eight who were unable to attend.
    • Work group members present (in person and remote).
    • Work group members not present:
    • WSLCB supporting staff:
      • Chris Thompson. WSLCB Director of Legislative Relations. Cannabis Potency Tax Project Manager.
      • Brett Cain. WSLCB Policy Analyst and Tribal Liaison. Cannabis Potency Tax Project Lead.
      • Trecia Ehrlich. WSLCB Research Consultant. Cannabis Potency Tax Project Lead.
      • Victoria Owen. WSLCB Rules and Policy Assistant. Cannabis Potency Tax Project Administrator.
      • Rick Garza. WSLCB Director.
      • Jim Morgan. WSLCB CFO.
      • Justin Nordhorn. WSLCB Enforcement Chief.
      • Nicola Reid. WSLCB Licensing Compliance and Policy Manager.
    • Facilitator and guests:
    • During the meeting, WSLCB Research Consultant Trecia Ehrlich framed the gathering in a notable way which she subsequently described to Cannabis Observer: “I believe my statement was something to the effect of; wanting to acknowledge that we do a lot of targeted stakeholder engagement and have not had a lot of opportunities for leaders from the cannabis industry to engage at the same time as leaders from the public health, research, and prevention community. While there may be difference in perspective this creates a unique opportunity for relationship building and making new connections in two intersecting work spaces…I encouraged people to make new connections and lean in to their growing edge.
  • The work group occupied the majority of its first meeting establishing ground rules for interaction – but also asked some direct questions about the expected framing of work products.
    • Facilitator Debbie Rough-Mack led the group through a series of questions to elicit agreement on ethical norms and protocols for the group context, including specification of work group roles and a system of hand gestures to communicate agreement, neutrality, disagreement, and indecision.
    • Members addressed comfort levels with transparency into proceedings, agreeing to publish work group handouts and the member list on a dedicated screen on the WSLCB website. Minutes would be recorded and edited by Owen then reviewed by the group before publication to the web. The group agreed it would be helpful for Cannabis Observer to publish a summary, but did not consent to recording the proceedings.
    • Members asked to confirm who would draft and be listed as the author of the report to the legislature. Thompson indicated the study would be authored by the work group. He offered WSLCB staff support to draft the report should the work group request assistance.
    • Members asked for clarification about the purpose of BOTEC’s parallel workstream and report – would that report also be provided to the legislature? Thompson indicated BOTEC’s report was not for the legislature, but intended as input for the group to consider. He suggested BOTEC’s report could be included as an appendix to the work group’s study, with selected themes included or rejected at the work group’s discretion.
    • Early in the conversation, Confidence Analytics CEO Nick Mosely pointed out “potency” was a problematic pharmacological term which needed to be addressed in relation to any system of taxation by potency. Exploration of that theme was parked for consideration at a subsequent meeting of the work group.
    • As no substantive content was addressed during the first two-hour meeting, members agreed future meetings should be longer rather than more frequent. At publication time, the next meeting of the work group was being planned for mid- to late-September.

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