WA House RSG - Committee Meeting
(December 5, 2023) - Work Session - Cannabis Social Equity Program

2023-12-05 - WA House RSG - Committee Meeting - Work Session - Cannabis Social Equity Program - Takeaways
[ Event Details ]

After WSLCB and WA Commerce officials went through their responsibilities for the cannabis social equity program, two applicants aired grievances with how the program had been handled so far.

Here are some observations from the Tuesday December 5th Washington State House Regulated Substances and Gaming Committee (WA House RSG) Committee Meeting.

My top 4 takeaways:

  • Leadership from the Washington State Liquor and Cannabis Board (WSLCB) gave committee members a status report on the cannabis social equity licensing program before outlining how a second round might be different.
    • Director of Licensing and Regulation Becky Smith previously reviewed the status of social equity program applicants on October 31st. She added new details around the progress of social equity applicants and responded to comments by agency leaders on local authority and disproportionately impacted area (DIA) mapping during the November 8th Executive Management Team (EMT) meeting.
    • During the work session, Director Will Lukela wanted to “remind everyone where we are and what I think the important takeaways are.” He mentioned that a “licensure process created after House Bill 2870 passed back in 2020 occurred this summer and we're gearing up with some rulemaking for the second phase created under Senate Bill 5080.” Officials were “trying to learn everything we can from that first process so that we can make the second round better,” he said, and claimed “there were three big questions coming out of this first round” (audio - 1m, video).
    • Director of Legislative Relations Marc Webster urged lawmakers to use the WSLCB presentation as a resource. He provided a summary of HB 2870, the Washington State Legislative Task Force on Social Equity in Cannabis (WA SECTF), and the rules WSLCB had already implemented following the bill, plus a second law modifying the program in 2021. Webster mentioned WA SECTF recommendations officials had incorporated, highlighted agency-led outreach events in 2020, and higher traffic to their online resources (audio - 6m, video, presentation).
      • Webster talked about how the application window for available retail allotments was opened “in the spring….of 2023, from March through April [27th].” Based on task force recommendations, applicants were initially vetted by a third-party firm, Ponder Diversity Group (PDG). SB 5080 added a requirement for an external vendor to vet applicants into statute.
      • “40 people right now advanced through…that process and are looking for locations right now. Two have them and are just about ready to open,” he said. Webster described how successful applicants “could move that license anywhere in a county, but they had to stay within the county boundary.” Overall, “King County had the most [applicants] and several had zero,” he explained. As many people were competing for the same allotments in a county, “the minimum score you needed to get a license differed wildly by by counties.” King County retail spots were only possible for the highest scoring applicants while “at the other end of the spectrum, there were three counties in which no one applied,” he noted. Applicants with matching scores in a county with limited allotments went through a double blind lottery, Webster told lawmakers.
      • “With 500 applicants for less than 50 licenses, most applications were withdrawn or did not move forward and those applicants have a right to appeal,” Webster stated. He explained a bit of the appeals process for applicants, and said at that time there were “28 at the Attorney General's Office, 27 are…in pre-hearing stage at the Office of Administrative Hearings, some who withdrew are in those ‘board final orders’ or ‘appeal withdrawn.’”
      • Turning to the racial demographics of applicants, Webster said a PDG survey found “a plurality of applicants, 47%, are Black/African American, 14% were Hispanic, and 13% Non-Hispanic White.” Applicants passing the initial allotment stage were working with a WSLCB Licensing Specialist to finalize their applications by securing financing and a business location, he remarked. He acknowledged that some applicants were reporting difficulties with both of those requirements.
      • The producer/processor licenses to be issued under the program due to passage of SB 5080 would go through a “very different process,” Webster said. In addition, equity retail licenses could be moved statewide, provided a local government allowed it. There were also new criteria for DIA maps which determined some eligibility, and revised maps “should be done very, very soon,” he indicated.
      • Webster welcomed not just lawmaker, but public feedback about the equity licensing process, before taking questions.
    • Representative Kristine Reeves wanted to know if WSLCB was looking into the racial demographics of those financing equity businesses. Webster responded that PDG had surveyed applicants, rather than the agency, but “I'll see what we have” as financiers should be listed on a license application. Reeves encouraged him to follow up if there were any differences in the racial makeup of applicants and financiers. She also asked about the criteria in law for determining DIAs. Webster noted that factors such as median income, percentage of an area’s population in poverty, and utilization of government benefit programs had been used (audio - 2m, video).
    • Representative Melanie Morgan welcomed Lukela, mentioned her previous role as Co-Chair of WA SECTF, and noted that a technical assistance grant and mentorship program had also been created in law. “So, I'm a little disappointed to hear today that we have some applicants that didn't make it through because of this,” she said. WA SECTF members had recognized the challenge funding would pose, so Morgan was curious how WSLCB staff were “taking this information that you have now with these applications that came through, and how you're connecting that back to the very program that we put in place.” Webster replied that this money and aspect of the equity program had been the responsibility of the Washington State Department of Commerce (WA Commerce), but noted WSLCB staff had “definitely been working with Commerce to say ‘we've got our applicant pool, now these are the people who who need that funding’” (audio - 2m, video).
  • Washington State Department of Commerce (WA Commerce) Life Science and Global Health Sector Lead Alison Beason went over the resources and events her agency had organized to help social equity applicants (audio - 13m, video, presentation).
    • In June 2022, Beason took over representing WA Commerce on WA SECTF midway through the group’s work producing recommendations and a final report in December 2022.
    • At the work session, Beason explained that she was the lead staffer for the technical assistance grant and mentorship efforts at WA Commerce. She reiterated a bit of the background about the social equity program and WA SECTF, stating she hadn’t been part of the development of the law, but “I volunteered for this assignment because I worked five years in equity offices with the City of Tacoma creating the equity index” and then a similar effort at the Port of Seattle which involved technical mapping which she compared to determining DIAs.
    • Using WA SECTF recommendations in 2022, “I hit the ground running,” Beason stated. Staff “started the online business plan…in September and then in 2023 the window for application opened up…and so we launched March 11th on helping with those technical assistance and mentorship programs,” she stated.
    • She explained how it had long been the intention of WA Commerce staff to launch mentorship and technical assistance programming in 2023 while waiting on grants for equity businesses until 2024. Beason told legislators that she’d also conducted market research by talking to regulators handling equity programs in other states, as well as collaborating with WSLCB representatives in designing a mentorship roster and series of free educational video modules produced by Make Green Go!, a minority and woman-owned business. “We launched that in September and I think we had some good outcomes” in helping people see hurdles in the process, Beason claimed, adding, “I felt like that gave everyone [an] even playing field to understand before you even get into this business.” There were “over a thousand people that enrolled in that and 40% completed all 17 modules,” Beason mentioned.
    • WSLCB staff also retained Make Green Go!, Beason said, to organize “seven modules that talk about the application program and social equity program.” She indicated “over 922 people registered…between the live webinar or the webinar that was recorded and posted later on that website,” adding that in the live webinars there’d been “60% engagement…between asking questions, seeing what, what they can get additional information about, and I think it was really a positive experience.”
    • Mentorship had been the next stage, and had been organized through an online portal from one of the mentors which allowed all of them to post information about their expertise and any events they hosted for equity applicants. “We had around 274 active people on that portal,” she reported, feeling, “we got everything to a point where I think it was very transparent, allowed people to have someone ask a question and then have a response from one of the mentors who specialized in that.”
    • A March 11th Cannabis Equity Summit at Highline College allowed most mentors to introduce themselves in person, Beason relayed, and “we had almost 400 people enrolled. Again, this was a free event” with “over 250 people” attending in person, plus more viewing it remotely. She praised how some mentors had worked to bring specializations like real estate or accounting to prospective applicants, pointing out one “took a PowerPoint presentation…screenshot by screenshot of how to do the application on their own will and time - this was not in their contract.”
    • Only once the first round of retail allotment applications were done did Beason begin to seek a vendor to handle grants for businesses on October 27th. She noted that support in “cash and taxes, securing funding, capital budgeting” were top concerns, but many applicants wanted “generalists” who had experience in the cannabis sector, legal consultation, and “software came up for every category.”
      • Wording in RCW 43.330.540(3) had required WA Commerce officials be able to issue grants to “cannabis license applicants and cannabis licensees holding a license issued after April 1, 2023, and before July 1, 2024.”
    • Following a brief reminder of the schedule from Co-Chair Sharon Wylie (audio - <1m, video), Beason quickly emphasized some points in the timeline for WA Commerce grants. The October 27th request for proposals (RFP) had been issued and Beason wanted a “holistic approach…because I did a one-off with the online technical assistance, a one-off with the internship program. We got feedback that people wanted a better flow of information…not duplicate information.” The RFP was set to close “December 11th, and then hopefully be able to launch a program in February” of 2024 (audio - 1m, video).
  • Black Excellence in Cannabis (BEC) Co-Founder Peter Manning and Vice President Mike Asai shared criticism of how WSLCB had handled the equity licensing process so far.
    • Manning and Asai had regularly offered public comments on the social equity licensing process at WSLCB. Manning last spoke to the board October 25th about SB 5052, a 2015 law opening a second cannabis licensing window for merging the medical and recreational cannabis markets which had been implemented quickly compared to the length of time between when the equity program was passed into law in March 2020 and when licenses started to be issued at the end of 2023. Asai’s preceding public comments to WSLCB came on September 27th and October 11th when he communicated difficulties being experienced by some equity applicants.
    • During the work session, Asai established that their “hearts [were] heavy” over news that former WA SECTF Co-Chair Senator Rebecca Saldaña had been diagnosed with cancer, saying, “we're praying for you” (audio - 1m, video).
    • Manning expressed that the “Black and Brown community, we're just kind of like fed up at this point,” accusing regulators of offering “fluff” about helping equity applicants when “it's not rosy for us out there in the cannabis industry” (audio - 5m, video, handout).
      • Financial obstacles were no surprise, Manning believed, as Morgan and many others had established grants as part of SB 5870. “The funding was supposed to be available now,” he said, but now WA Commerce “is telling us that they want to push that back until they merge with 5080. That wasn't in 2870; this is something new.”
      • Such treatment by WSLCB was “typical of what they do to the Black and Brown community,” suggested Manning. Calling Webster an “honest guy,” Manning alluded to “other elements that they, LCB, that are just not cool for social equity. They do not recognize the Black and Brown community’s voice.” His example was how their organization had “reached out to LCB on September 15th…we said ‘hey, we don't think it's fair for you guys to tell the applicants that they have to do a record request to obtain a rubric score.’” Manning said the written response from agency staff amounted to “hey, that's the way it is. Too bad.” BEC filed a lawsuit “on the 26th against the LCB” but by September “27th the LCB sends out a notice, telling everybody ‘now you can see your rubric score.’” Manning felt that only because BEC was “proactive” with litigation for a “legitimate complaint” was there a fair resolution.
      • Manning insisted “2870’s not here because the LCB had a thought of morality that day and said ‘Black people were closed out.’” Instead, he’d filed a “federal lawsuit against the state” and then WSLCB had offered HB 2870 as request legislation, “that's how that happened.” Manning commented, “the program is not what we anticipated for our community. We're still being treated as criminals because we're applying and we're asking…to be a part of this industry. They still treat us like…we're breaking a crime, like we're doing something wrong,” concluding “we're not happy with the LCB at all.”
      • He urged lawmakers to review the documentation in their handout, and said “you know what? I believe the LCB needs to be audited…We need to see what they're doing…something's wrong with Licensing. They have…a race meter there.” Manning was confident “it's only an issue with Black and Brown people when it comes to being licensed by the LCB.”
    • Representative Michelle Caldier, a new member of the committee (audio - <1, video), asked if applicants got feedback on the point “process” in the scoring rubric. Manning replied that the “LCB told Ponder Diversity Group under no condition were they to converse points, on how to obtain points, what the points look like, and all that” (audio - 1m, video).
    • Asai, noting his history as a “pioneer” medical dispensary owner, laid blame at the feet of Lukela’s predecessor: “under former Director Rick Garza, the social equity program [was] a failure.” He felt he’d been “unjustly shut down by the City of Seattle and unjustly…shut out by the LCB” (audio - 5m, video).
      • Asai considered the program to be about helping “the Black and Brown community affected by the war on drugs. It's about the medical cannabis pioneers” with convictions but no equity licenses. “I know of several pioneers whose rubric score was high enough to obtain a license, but did not. Peter Manning's one of them.”
      • Mentioning SB 5052 from 2015, Asai argued that it had been implemented “without creating rules” and officials had posted that there should be “no rush to apply.” Instead, he said “emergency rules were out in place creating a very quickly pathway for retailers, who were predominantly White, to obtain a license.”
      • Asai listed his concerns about the more recent application process:
        • “The DIA map in this past January was leaked out to the White retailers before the community”
        • “The March 1st application day went live prior to the mentorship program started on March 11th”
        • “Applicants needed more one-on-one help prior to applying…everybody needed that direct one-on-one communication with somebody, not through the computer”
        • “Ponder Diversity Group closed an application window a day prior to the due date with no explanation, causing applicants to have anxiety and no hope”
      • Asai was also unhappy about the initial refusal of agency staff to more easily deliver the rubric scores from PDG, and that after their legal filing the “very next day—as Peter stated—the LCB retracted that, and then said ‘rubric scores are now available online.’” Close to four years after HB 2870 was passed into law, “grant funding has not become available,” he noted.
      • “With all due respect to Director Lukela, he just got here,” said Asai, adding, ”I think it's sad for the LCB to not show up, and I mean Rebecca Smith,” Deputy Director of Licensing Jeanne McShane, or “somebody from the board.” Asai felt “they popped him up and put him up here as if that's gonna make us happy. They've hired some Black and it's great, but it has not changed what's going on internally in the LCB.”
      • Claiming BEC was “solution based,” Asai complained that agency officials “refuse” their options. He had wanted dedicated scoring for medical dispensary “owners, not someone that had a business plan, or name was on a stock,” but a BEC petition for WSLCB to change that scoring criteria “was denied” earlier that year.
  • The panelists responded to questions from committee members on the application process, measuring outcomes, and how agencies communicated information or used their expertise to give applicants the best chance of success.
    • Reeves noted the scores of applicants were calculated for each county and wondered if committee members could see that information. Webster promised to get that. Reeves then said since BEC had alleged “those rubric scores aren't going to match the potential demographic data that you've shared…will you be able in…the presentation material that you present back to us, the demographic correlation to the applicants based on their score?” Webster answered that they’d received everything back from PDG, “so we'll be able to do that” (audio - 1m, video).
    • Representative Greg Cheney was curious if applicants lost out on available retail allotments in heavily populated areas when they might have qualified in counties where no one had applied, and asked whether WSLCB staff had told applicants about this. “Because it's troubling if we have these licenses available in counties where no one is applying, that somehow that information wasn't shared,” he added. Webster retorted they “weren't going to open it back up and say ‘hey, by the way…if you move to Skamania County you might have a better chance.” He mentioned this had been one of the reasons SB 5080 had allowed licenses to be portable to other counties, “so you're not going to do that anymore for the second round.” Furthermore, “we also didn't want to…tell these folks ‘it's fine, we'll give you a license, just uproot your whole family’” to a more remote jurisdiction. Cheney pursued “respectfully, isn't that their decision to make not not the LCB's decision,” and presumed there may have been opportunities “denied by not advertising effectively…these other open available slots.” Webster understood his perspective, and noted that the allotment maps had been available before applicants began the process (audio - 2m, video).
    • Reeves inquired whether agency staff would “take all of the applicants who went through this first round and…were not successful” and notify them when “the second round opens, and will they be told…here are the reasons that your application was deficient, but under the new second round list of criteria technical assistance might be provided?” Webster didn’t have an answer, but expected those who had already gone through the “very, very challenging” application process would have experience that gave a “leg up” in any future licensing window. He promised, “I'll get back to you with ways we can prioritize those folks” (audio - 2m, video).
    • Ranking Minority Member Kelly Chambers called upon Beason, wondering if WA Commerce had offered any help “finding a viable retail space…something live that they can go and navigate and see available properties or, or even zones if those municipalities have…limited areas where you could select to operate. Is that currently available, or going to be available to those licenses?” Beason replied that there was a video module dealing with real estate, and that one mentor had that experience while another “focused on…the schematics of the building that you need on that property” (audio - 2m, video).
    • Reeves hadn’t heard “a clear correlation that the outcomes that you are taking credit for right now actually correlate to the interventions that you deployed.” She wanted particulars on how the technical assistance and mentorship mentioned by Beason “was absolutely critical to them to be successful in getting their actual license,” or evidence that “the outcomes that you accomplished were directly tied to the inputs that you provided?” Beason hoped to gather more data, “to get a list of all the LCB people, the 46 applicants, to understand, did any of the people that received our mentorship or online technical assistance” actually get selected. There was “quantitative data that I would like to do analysis on in the future,” she stressed, but she hadn’t collected it from the agency so far. Anecdotally, “we had email where people gave praise,” added Beason. Reeves regarded her answer to be “no, that you do not have clear correlational data that the outcomes of those 46 or 42 applicants… clearly connect” (audio - 3m, video).
    • Cheney remarked that he worked with small businesses and knew the value of a good mentor, but with finance an obstacle in many other industries, he wondered if WA Commerce staff had taken advantage of business development expertise they already had at the department. Beason answered that WA Commerce had “sector leads in maritime, in aerospace, in clean tech,” and that she had “a small incubator in life science in Tacoma.” So the cannabis equity program resources were already helped by a diverse set of experience at the department, and she suggested “looking at incubators, maybe when it comes to cannabis, as they expand the licensing to processing and producing” (audio - 2m, video).
    • As Wylie brought the discussion to a close, she recognized “big changes never come easy in government. And in some of the most important work we do, doesn't get done right the first time.” But that wasn’t a reason to give up, she stated (audio - 1m, video).
    • Asai spoke up to say WA Commerce wouldn’t tell them an exact sum for equity grants, but they’d heard it would be $3 million, adding, “that's not enough. We need 20 to 24 million for businesses” (audio - <1m, video).
      • The RFP published by WA Commerce acknowledged, “through RCW 69.50.540, the Legislature appropriated $6.0 million in state general funds over fiscal years 2024-2025 in support of this Program. An additional $3.0 million as described in the Community Reinvestment Plan to invest in communities disproportionately harmed by the war on drugs will also supplement this funding. At this time, the available total funding for this Program is $9.0 million dollars.” The document notes that after costs to implement the program, “$8,100,000 [was] budgeted for distribution as grant funding awards.” On October 31st, department officials published their “Community Reinvestment Plan Report” and announced their “plan to invest $200 million to address disparities created by the war on drugs.”

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