JLARC - Committee Meeting
(September 20, 2023) - Cannabis Market Study

As JLARC staff prepared a mandated study of the state cannabis market, lawmakers sought to understand what was being studied - and suggest additional topics for inclusion.

Here are some observations from the Wednesday September 20th Washington State Joint Legislative Audit and Review Committee (JLARC) Committee Meeting.

My top 3 takeaways:

• A 2023 law to modify and expand an established cannabis social equity licensing program with the Washington State Liquor and Cannabis Board (WSLCB) included a JLARC study to aid lawmakers in determining how many more producer licenses the market could accommodate.
  • SB 5080, signed into law on May 1st, instituted many changes to the program and specifically asked JLARC staff to determine “whether current levels of cannabis production align with market demand and capacity, including the impact of any additional cannabis producer licenses granted under the legislation.” A final report was due by June 30, 2025.
    • This aspect of the law was added via amendment on February 28th. Senator Rebecca Saldaña, sponsor of both the bill and amendment, told senators the JLARC study would “make sure that we're understanding…how saturation is working, how density is working, and be able to come back and learn from that for any future action.”
  • WSLCB implementation of SB 5080 was “tentatively” set to begin in “mid-to-late September,” according to Policy and Rules Manager Cassidy West on August 29th. However, Director of Policy and External Affairs Justin Nordhorn commented on a slow down in rulemaking due to staffing issues on September 13th. He attributed this in part to an interest by staff “to do lessons learned on the applications that have come in.” Nordhorn expected a CR-101 to begin the process would be filed “in October” and proposed changes were projected no earlier than March 2024.

• JLARC Research Analyst Suzanna Pratt showed committee members the proposed study questions for evaluating the cannabis market (audio - 3m, Video - TVW, presentation).
  • After touching on the history of Initiative 502 (I-502) and WSLCB cannabis licensing, Pratt described how the social equity program established in 2020 was “intended to reduce barriers to entry to the cannabis industry for individuals and communities that have been most adversely affected by the enforcement of cannabis related laws.”
    • Another law modified aspects of the program, including funding and applicant criteria in 2021.
  • Pratt relayed that SB 5080 “made some amendments to this program, and also directed this JLARC study. Specifically, we are directed to review the Liquor and Cannabis Board’s previous canopy studies, and canopy refers to the square footage that's dedicated to growing cannabis…both the plants themselves and the space in between them. We were also directed to examine whether cannabis production aligns with market demand and capacity; and…estimate the impact of ten new producer licenses that will be issued under” the program through SB 5080.
    • WSLCB officials sought stakeholder input on refining the definition of production canopy in October 2022, but by March 7th, staff reported on their decision to forgo canopy rulemaking in favor of an interpretive statement to reduce confusion around the existing definition in WAC 314-55-010 (31).
  • Three general study questions had been proposed:
    • 1. How does cannabis production compare to market demand and capacity?
      • a. How much canopy is licensed and how much cannabis is produced?
      • b. How much cannabis do retailers sell?
      • c. What is the demand for cannabis in WA?
    • 2. What is the estimated impact on the cannabis market of the ten new producer licenses issued under the Social Equity in Cannabis Program?
      • a. What is the estimated impact on equity in the cannabis industry?
    • 3. What information is available about factors other than market demand and capacity that can affect the viability of and equity within the cannabis industry?
  • Pratt said staff were on track to “present our preliminary report to you in May of 2025, and our proposed final [report] in July of 2025.” She then identified the rest of the research team as Research Analyst Aline Meysonnat and Project Research Analyst Andrew Hatt.

• Legislative members asked questions which both clarified whether particular themes would be studied and pushed for other topics to be added.
  • Representative Keith Goehner, offered that when I-502 passed he’d understood “that cannabis was cannabis, and since then we've certainly realized that things have evolved considerably.” Referring to “potency and the different strains,” he asked whether those criteria would “be factored in, in your study, as to changes that have evolved in the industry and the product itself?” Pratt said their analysis would start when “the first retail stores opened in 2014” and they planned to evaluate “what have the changes been in the types of products available, volume of products, that will be part of our analysis.” When Goehner stressed that plant “potency” itself concerned him, Pratt replied, “we can certainly look into that as well” (audio - 1m, Video - TVW).
    • For several years, some public health officials and others had been concerned over the proliferation of legal concentrates and high-tetrahydrocannabinol (THC) concentrations in cannabis flower, sometimes referred to with the term ‘potency.’
    • Goehner was a former Chelan County Commissioner, and mentioned by commissioners there during a November 2020 meeting in relation to local efforts challenging WSLCB cannabis business licensing statutes.
    • In 2021, Goehner sponsored HB 1414, “Aligning marijuana licensing decisions by the liquor and cannabis board with local zoning ordinances.” According to the bill analysis, the legislation would have prohibited WSLCB “from issuing a new or renewed marijuana license for any premises located in an area for which the LCB has received a written objection from a local jurisdiction stating the marijuana license violates local zoning ordinances.” The bill received a hearing in February 2021. In March 2022 remarks in a WA House session, Goehner suggested “legal grows that are a problem” just as much as “illegal grows” when not “in compliance with the county code.” He felt State officials believing it was a local duty “to enforce your own zoning” had created “conflict.”
    • SB 5080 included the first local government objection process to WSLCB for cannabis licensees based on a “preexisting local ordinance limiting outlet density in a specific geographic area.”
  • After Chair Mark Mullet encouraged commentary from Saldaña, referring to the enacting legislation and study as her “baby,” Saldaña brought up that she’d thought the questions might cover “saturation of this retail front, but…that's not included in this study.” Mullet said the study “focused on the production side” with a goal not to “have more production than what we consume because it just seems to lead to black market leakage of product” (audio - 1m, Video - TVW).
    • Saldaña was a legislative co-chair of the Washington State Legislative Task Force on Social Equity in Cannabis (WA SECTF).
  • Senator Bob Hasegawa wondered if there was opportunity for a comparison with “the marginal impact had there been a social equity in cannabis program embedded in the original licenses that were put out, so there's an apple-to-apples comparison,” as licenses “were not equitably distributed when they were originally assigned.” Pratt promised to look into “the ways the social equity licenses will be issued to new applicants,” which might “shed some light on that” (audio - 1m, Video - TVW).
  • Hasegawa followed up to ask whether the “attempt to try and open up ownership from out-of-state investors” could be evaluated. Pratt answered that “in our third study question when we look at factors that affect the industry as a whole that is one factor we hope to look into” (audio - 1m, Video - TVW).
    • WSLCB Director of Legislative Relations Marc Webster brought up legislative efforts to allow out-of-state ownership when briefing board members on September 13th.
  • Saldaña emphasized the need to look at types of cannabis production—indoor, greenhouse, outdoor, or any combination of them—when studying canopy “in terms of financial viability or differences in and how that product [was] received in the market.” Pratt said “that's also something we're planning to address during our field work” (audio - 1m, Video - TVW).
  • Hasegawa asked if there was a “distinction being drawn between THC cannabis and industrial hemp.” Pratt responded “we're still learning about what information is available about cannabis that’s sold in Washington. So, to the extent that we can differentiate, we will do so.” When Hasegawa checked if the study would cover any hemp program licenses, Pratt suggested that was “outside the scope of this study,” but staff would “acknowledge the scale of that market and how, if at all, it interfaces with the recreational cannabis market.” Mullet suggested that “industrial hemp would be a very different focus…I don't think we have as much anxiety about overproduction in that space” (audio - 1m, Video - TVW).
    • Concern over the interplay between legal hemp and unregulated consumables containing hemp cannabinoids led lawmakers to pass SB 5367 on May 9th. The law started as WSLCB request legislation focused on establishing control over the items. WSLCB initiated rulemaking to implement SB 5367 on June 21st.

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