WSLCB - Board Meeting
(July 31, 2024) - Rulemaking

Three sets of proposed rule language related to payment flexibility, the social equity program, and THC regulation were all given the green light by board members.

Here are some observations from the Wednesday July 31st Washington State Liquor and Cannabis Board (WSLCB) Board Meeting.

My top 3 takeaways:

• Policy and Rules Coordinator Daniel Jacobs presented a CR-102 with draft rules pertaining to Payment Flexibility for licensee-to-licensee sales (audio - 5m, video - TVW, video - WSLCB, Rulemaking Project).
  • Accepted as a petition more than a year earlier in March 2023 and opened as a rulemaking project that May, Jacobs set about explaining prior outreach, potential changes, and timeline for the project. He said the change would be to “WAC 314-55-115 on what methods cannabis licensees can use to purchase cannabis from other licensees.” Relevant language “identifies check, prepaid accounts, debit or credit card, electronic fund transfer, or using a money transmitter as various methods that licensees can use to purchase cannabis from other licensees,” stated Jacobs. He specified the change in rule wording would “clarify that, just as with the other payment methods…when paying via check, the purchase order has to be done via an irrevocable invoice. Both parties have to preserve and keep records consistent with other LCB requirements, and the check has to be mailed no later than the next business day after cannabis delivery, and it has to be deposited no more than five business days post cannabis delivery.” Jacobs added that the proposed language would further “clarify that use of the word ‘delivery’ refers to cannabis delivery, as opposed to delivery of check.” 
  • Jacobs described how staff opened a survey between June 3rd and July 8th about their draft language, and “the majority of those who responded to the survey were on the manufacturing side of cannabis and mostly supported the proposed rule changes.” He shared that the primary “note of hesitation is that a decent portion of respondents expressed concerns about a potential increase in NSF or insufficient fund issues.” However, Jacobs said this concern, which was raised in the only written comment on the CR-101, might be misplaced because “NSF concerns are already addressed in existing rule language.” 
    • Section (6) of WAC 314-55-115 reads; Any transaction reported as having nonsufficient funds (NSF) will be considered an extension of credit. If a transaction is reported as NSF:
      • (a) The purchaser must pay the full amount of the transaction to the seller by 3:00 p.m. on the first business day following receipt of the NSF report.
      • (b) Until the NSF transaction is paid:
        • (i) The cannabis licensee who received the NSF transaction will not deliver any cannabis to the purchaser; and
        • (ii) It is the responsibility of the purchaser to not receive additional cannabis from any other cannabis licensee.”
    • Jacobs added that any “impermissible extensions of credit are subject to penalties identified in [WAC] 314-55-523.”
  • The rule revision was expected to add no more than “minor” costs on businesses which would have to “familiarize themselves with the rules around checks. And they aren't going to have to learn anything new, because…the same rules that apply to the other existing payment methods are now going to apply to checks.”
  • Jacobs then addressed how “the petition was submitted actually asking that checks be allowed to be mailed up to three days post delivery. However, here we're proposing that the rule language only allow for one day post delivery.” He said this was to avoid making checks an “exception” to requirements that other payment methods “have to be done one day post delivery and completed five days post delivery.” Staff felt, “as a good starting point here, we want to sort of bring checks up to be on the same level as the other payment methods,” Jacobs told board members. This approach also avoided exasperating NSF concerns.
  • Jacobs initially offered the following timeline following board approval of the CR-102:
    • Comment period open through the public hearing scheduled for September 11th.
    • Without changes, a CR-103 to enact the rule changes would be filed September 25th.
    • Rule language goes into effect on October 26th.
  • Board Chair David Postman called the project the “sort of evolution we need to be looking at” when it came to payment options for cannabis businesses (audio - <1m, video - TVW, video - WSLCB).
  • Board members voted to approve the CR-102 (audio - <1m, video - TVW, video - WSLCB).

• Policy and External Affairs Director Justin Nordhorn went over rule and rubric changes associated with implementing social equity program legislation SB 5080 (audio - 13m, video - TVW, video - WSLCB, Rulemaking Project).
  • SB 5080 was signed into law in May 2023 and board members initiated the rulemaking project in November 2023. Staff previously discussed implementation of the law on July 9th and 16th.
  • In the meeting, Nordhorn mentioned the project “will be amending WAC 314-55-570,” and that after opening the project, “LCB conducted initial surveys of applicants who participated in the application process under House Bill 2870,” which established the equity program in 2020. He shared that agency leaders “contracted with Whitney Economics to address the statutory requirement around thresholds, and we'll be providing some of that information more online.” WSLCB also “conducted additional surveys in July of this year,” Nordhorn remarked.
    • The first survey garnered 73 responses which helped shape the initial draft rule text, he explained, which—along with input from a revised applicant scoring rubric—“were presented in open public meetings” in May. Officials “received feedback from community stakeholders during public comment periods at board meetings” as well, Nordhorn said, and there were “about 30 written comments for this particular project.”
    • Further revisions to the rule language were completed and sent out earlier in the month, and he noted a second survey had elicited 242 responses. He offered some specific results from the anonymous survey:
      • “The majority of respondents identified themselves as community members, followed by House Bill 2870 applicants, and then existing cannabis business licensees.”
      • “About 66% did not attend any previous stakeholder engagement sessions.”
      • “56% identified themselves as a member of historically marginalized communities.” After “removing 46% of the respondents who said they were not going to apply…69% of those respondents [that planned] on applying under 5080 identified themselves as members of historically marginalized communities.”
      • “26% of the overall respondents said they were planning on being applicants under the Senate bill 5080 rule set.”
    • When considering “highlights” of the survey, Nordhorn acknowledged that “it was really split” on a number of topics like disproportionately impacted areas (DIAs). Moreover, the survey allowed responses besides yes or no, he indicated, “for example, 50%, half of the people responded, felt…applicants who lived in a DIA for one to five years should be awarded points on the rubric. That doesn't necessarily mean that 50% were the total opposite, because some people had no preference.” Nordhorn then went over some prominent topic responses.
      • “57% of respondents said points should be awarded for cannabis specific offenses…about half, 53% felt that the point should remain the same, regardless of time served, which we hadn't built into the rules.”
      • “48% said that awarding 15 points for having…less than the median household income was too low. And then we looked at the subset of those who were planning on applying, that actually increased to 60% felt that was too low.”
      • “51% felt that points should not be awarded for having previously owned a medical cannabis dispensary or collective garden.”
      • “About half, 49% reported points should not be awarded to those…who filed an application under House Bill 2870.”
      • “53% believe that House Bill 2870 license licensees and title certificate holders should be allowed to move their license if they were unable to secure a location.”
      • “59% of respondents reported affidavits should be allowed in some instances, and more support was indicated for affidavit use in the DIA area and the arrest and conviction area[s].”
    • Nordhorn outlined what had changed in the proposed rules and scoring rubric based on the input they’d gathered. “WAC 314-55-570, identifies qualifications to be a social equity applicant, where businesses can be located, and provides regulation for the application process,” he observed, and besides rubric changes, “the focus was also for the four areas under Senate Bill 5080 under those qualifications…that are identified there.”
    • Changes Nordhorn laid out covered “a number of definition changes to include ‘disproportionately impacted area,’ ‘social equity plan’...to align with statute. We also amended definitions of ‘family member,’ ‘median household income,’ ‘preliminary letter of approval,’ ‘social equity contractor,’ ‘social equity program applicant,’” and a new definition for “social equity registrant.” He said the last definition reflected a need to “distinguish two phases of the application process. So a ‘registrant’ is an individual who has registered to be evaluated for qualifications under the social equity criteria. An ‘applicant’ is an individual who has submitted an application, has been evaluated by the third party contractor, received a qualifying score based on scoring rubric and rule; and received a preliminary letter of approval.” This distinction meant registrants didn’t need to “go and apply to other state agencies before they come through” the application process and reduced barriers to entry, Nordhorn argued.
    • Nordhorn described how a new application window would start through an agency-hosted online portal. “It is mandatory because we need to know who's going to be sent over to the third party vendor,” he said, “but other than that, we've alleviated those other requirements.” Nordhorn relayed that the “qualifications section and scoring rubric and the preliminary regulations have been adjusted to align with the updated criteria for the social equity applicants.” The rules would formalize mobility requirements for equity licensees “allowing House Bill 2870 applicants who have not secured a location within 90 days after the closure of a 5080 application window to locate their license to a different county.” Additionally, retail title certificate holders “who qualify as social equity applicants” would be empowered “to reinstate their license under the social equity program, with the eligibility determination and relocation options providing avenues for those social equity title certificate holders to reenter the market,” he stated. Nordhorn attributed the change to “stakeholder feedback on inclusivity and equitable access to licensing opportunities.”
    • Along with establishing appeals rights for application withdrawals or denials, Nordhorn said household income calculations were also changed and “now consist[ed] of the combined total gross income for all household members, ages 15 and older, including any taxes and deductions that may apply.” This was part of the U.S. Census Bureau definition and agency staff hoped to align DIAs with the federal standard as well, he indicated. Nordhorn explained that local governments “can object to the location of proposed cannabis retail licenses based on pre-existing ordinances limiting outlet density…it can't be responsive, or reactive to somebody applying, but they could have that in place beforehand.”
    • “We also built in conflicts of interest safeguards to reduce the risk of any preferential treatment between a third party vendor and applicants or licensees,” Nordhorn added.
    • Nordhorn said SB 5080 required WSLCB “to identify county thresholds for retailers, producers, and processors, and these rules establish thresholds will be evaluated every three years, beginning in 2029.” Whitney Economics had produced a report on license thresholds that “indicate the number of potentially viable licenses by county based on economic review and projections of our contracted economists.” The Whitney Economics work was intended to inform future board recommendations on additional equity licenses, Nordhorn shared, stressing “we're not claiming in the rules and the information we're providing that these will be viable licenses, it's projections on what the potential viability could be, so people who want to apply for a license can make informed decisions” about the Washington cannabis market.
      • A May 3rd version of the report executive summary (labeled as a ‘draft’) and methodology were obtained through public records request. At time of publication, the final report had not been made publicly available.
    • Retail opportunities “are considered available, but very limited in scope,” Nordhorn explained, as the report indicated “634…retailers may be economically viable by 2032.” Shifts in consumers moving from unlicensed markets to licensed ones “would be representative in that producers have the capacity to supply more cannabis and demand right now.” However, licensed producers were “the most limiting area, and so folks should be aware that the business opportunities in this particular area will be…the most challenging of the three license types.” By contrast, processors had the greatest opportunity to grow, with economists estimating “a demand between 1,700 and 3,000 [processor licenses] by 2032.” The draft report included some data points not mentioned by Nordhorn:
      • Included in the Whitney Economics records request was a 2022 Leafly Opt-Out Report which viewed local governments banning cannabis business stores as propping up unlicensed cannabis markets. The report argued stores-per-capita was one indicator of legal market success, and that Washington had captured 70% of the legal market with 6 stores per 100,000 residents. It also noted the high rate of compliance with ID checks in Washington retailers as one of the selling points of lawful cannabis access.
      • Economists estimated a potential for consumers buying from the unlicensed market to transition towards legal stores: “There was between 50% - 55% legal consumer participation. Described differently, between 45% - 47% of the total demand was satisfied via illicit channels…This is a lower number than previous reports provided to the LCB due to differences in the methodological approaches and the number of consumers in the market...If greater legal participation is achieved, there will be an increased demand for additional retail outlets sooner.”
      • Comparing the total supply capacity of already-licensed producers with the “supply requirements” of the current market, if all existing producer licenses were active, “all supply required to satisfy the legal demand would only require producers to operate at less than 30% capacity.”
      • The report featured a table of cultivation types alongside estimated “Output Capacity in Pounds” for each tier level.
      • Part of the appeal of processor licenses were the “low barriers to entry and an abundance of both biomass supply and consumer demand,” plus, these licenses were “mostly made up of smaller businesses, so this opens up an entire sector for innovation and product development.”
      • The executive summary concluded, “Some focus by LCB to establish some guardrails related to the expansion of licenses is required, but overall the LCB has managed the industry well, especially considering it was the first to legalize.”
    • SB 5080 was set to follow the same schedule as Payment Flexibility with a public hearing set for September 11th followed by CR-103 to adopt the rules on September 25th, with changes taking effect on October 26th.
  • Considering the dire warning from Whitney Economics about producer licenses, Board Chair David Postman wondered: “Does the LCB have authority to hold back the producer license as part of this program?” (audio - 2m,  video - TVW, video - WSLCB)
    • Nordhorn answered that they had to have an application window for ten licenses approved under SB 5080, but “we want to make sure people are really clear on what that projection looks like if they choose to get into that.” While individuals might have “a really good business plan, they're a good business owner, they may be very successful even in the established marketplace,” but objectively “economic projections for businesses are really limited in that particular space.”
    • Postman also asked when the Whitney Economics findings would be made public and expressed an interest in having a briefing during a board caucus. Nordhorn promised, “our research team is going to come and present some of the findings to a caucus, and then we'll have that available online” and updated every three years “starting in 2029.”
    • During the prior day’s board caucus Postman had commented on his interest in learning more about the findings of the report.
  • Postman also asked about the application portal for the program (audio - 1m, video - TVW, video - WSLCB).
  • Board Member Ollie Garrett requested staff send her information on the number and demographics of retail title certificate holders (audio - <1m, video - TVW, video - WSLCB).
  • The board voted to approve the CR-102 on SB 5080 implementation (audio - 1m, video - TVW, video - WSLCB).
  • Later in the meeting, Postman returned to the rulemaking project to ask about changes to the applicant scoring rubric. Nordhorn noted there was a lot of divided feedback, leaving staff to make some judgment calls (audio - 6m,  video - TVW, video - WSLCB).
    • They would continue awarding points for residing in DIAs for between one and five years, Nordhorn stated. As for awarding points for convictions, survey responses were split and staff “focused on the cannabis offenses, and we did not exclude the drug offenses, but we lowered the points for drug offenses” to 20 instead of the 40 given for cannabis-specific convictions. Furthermore, he shared that applicants with separate cannabis and drug convictions could only receive points for the cannabis offense, and could only receive five points for having a family member with any drug conviction.
    • Nordhorn mentioned that points awarded based on household income had been doubled to 30 points based on feedback from interested parties, but only considered the year prior to application.
    • Despite encouragement for including so-called “pioneers” to be prioritized in the equity program, Nordhorn noted in the survey “over half that were saying that you should not get points for medical dispensary ownership prior to 2016 or as [HB] 2870 applicants, we opted to leave those two categories in” as they felt “these two fit into that particular provision, and there are impacts for those folks, and so we opted not to remove those.” However, points awarded in these areas were lowered, he remarked.
    • Nordhorn conveyed that the maximum possible number of points under the rubric had lowered from 310 to 250. He also noted, “from the previous proposals, we also had identified if you have ownership and current licensed businesses…we're no longer excluding points [when] licensees are eligible by statute to have five retail locations, and we didn't want to have that be a hindrance for current licensees to apply.”

• Policy and Rules Manager Cassidy West presented proposed rules for SB 5367 implementation related to regulating tetrahydrocannabinol (THC, audio - 19m, video - TVW, video - WSLCB, Rulemaking Project).
  • Passed into law in May 2023, the implementation project was undertaken by WSLCB in June 2023 and originally projected for completion in early 2024.
  • West specified that if approved, public comment would open and a hearing would be held on September 11th, a CR-103 would be presented September 25th, and absent further delays, changes would be effective on October 26th.
  • SB 5367 was a WSLCB request bill seeking clear regulation around hemp-derived cannabinoids, explained West, and would “amend or repeal sections of WAC 314-55 related to the regulation of products containing THC.” It had been proposed by agency leaders, she elaborated, “due to increased prevalence and complexity of products containing various tetrahydrocannabinols other than delta-9 that emerged on the unregulated market beginning in 2018.” West said after legalization of hemp, consumable cannabinoid products proliferated, and the law “created a loophole by not regulating other cannabinoids” such as cannabidiol (CBD) which was extracted from hemp and converted into other cannabinoids. As manufacturing and sales of consumable hemp products was occurring without WSLCB or any state agency oversight, she said SB 5367 had been moved by lawmakers wanting to “rectify these oversights and prioritize consumer safety and public health,” as well as keeping products from those under 21.
  • The proposed rule language reflected WSLCB staff work across divisions with their counterparts at the Washington State Department of Health (DOH) and Washington State Department of Agriculture (WSDA) as part of a “collaborative laboratory services program” (CLASP) implemented to assist the transition of cannabis laboratory accreditation authority to WSDA. This was important to ensure there were “uniform standards” among the differing agencies’ regulations to “facilitate a seamless implementation of the…regulatory modifications.” Changes were being proposed for:
    • WAC 314-55-010 - Definitions
      • Added references to some existing definitions in statutes to aid consistency, specifically “‘cannabis,’ ‘cannabis products,’ ‘CBD,’ ‘concentration,’ ‘cannabis concentrates,’ ‘cannabis and cannabis infused products’ and ‘THC concentration,’” plus THC and “synthetic cannabinoid.”
      • New definitions for “packaging unit,” “total THC,” and “WSDA” were also added.
    • WAC 314-55-095 - Servings and transaction limits
      • Limits focused on delta-9-THC, with ten milligrams allowed per serving and 100 milligrams per package, “consistent with current industry standards and the products available on the market.”
      • New limits proposed on “the amount of any additional single [THC] compound, and it cannot exceed 0.5 milligrams per gram per serving, and the combined concentration of…any additional tetrahydrocannabinol compounds cannot exceed one milligram per gram per serving.” While there were no known products which exceeded these levels, “we do want to account for future innovation.”
      • The CR-101 allowed for a “new category” of low-dose cannabis beverages to be sold, accomplished under separate legislation in 2024, but “our draft just reflects the statutory changes.”
    • WAC 314-55-102 - Quality assurance and quality control
      • Testing for THC is only required specifically for delta-9 and delta-9-THCA, as they are the most predominantly naturally occurring cannabinoids in the plant…proposed rules do not necessitate testing for additional specific THC compounds, despite the legislation broadening the definition of THC concentration to encompass a range of compounds [that tended to] remain insignificantly low, so less than 1% by weight.”
      • Testing for other cannabinoids was only required if a processor planned to advertise a specific compound like delta-8-THC on their product.
      • “Potency analysis” had been replaced with the term “cannabinoid concentration analysis” to align with WSDA regulations in WAC 16–309 and WAC 16-310. Total THC also had to account for any cannabinoids besides delta-9-THC, “if they are tested and present in amounts greater than 0.2 milligrams per gram.”
      • WSLCB staff didn’t “expect testing labs to have to calculate total THC for all of these [when] the reality is, they're not occurring in high enough amounts for this to apply.”
      • “We also replaced the term ‘containers’ with ‘packaging.’”
    • WAC 314-55-105 - Packaging and labeling requirements
      • Besides label changes to reflect the total THC update and the terminology shift from containers to packaging, “if there's confusion or additional clarity may be needed regarding layers of packaging, we have received stakeholder feedback that that might be something we need to look into.”
      • Changes revising “references of ‘unit’ with ‘package’ for consistency with statutory definitions and for the cannabis edibles and liquid form, we replaced ‘package’ with ‘bottle.’”
      • There was further clarity of “serving size, the number of servings in the container, and the amount of product for serving...not really a change substantially of what people are doing. It's just clarity for how to do it.”
    • WAC 314-55-106 - Cannabis warning symbol 
      • Similar terminology changes between “unit” and “package” occurred here.
    • WAC 314-55-109 - Additive requirements
      • Staff had replaced “potency analysis” with “cannabinoid concentration analysis, and…exactly how it is in WAC, 314-55-102, we also clarified that licensees must use a certified lab.”
    • West finally noted in all sections of the rule, the acronym “WSLCB” was replaced with the shorter “LCB.”
  • West outlined the significant public engagement opportunities they’d conducted in development of the rules starting in December 2023 when attendees “discussed and reviewed policy options on key concepts such as how to measure, report and label THC content, and…establishing a detectable level for THC compounds” which SB 5367 directed WSLCB to do. Next, a Stakeholder Survey was conducted in early 2024 and helped West’s team get a “little bit more substantive information.” She stated the 234 survey responses were useful in refining the rule draft which was presented in rulemaking workshops in March, April, and May of 2024. The additional feedback in those workshops resulted in the CR-102 language she was presenting, but “some of the changes that we had previously discussed in this rulemaking with regards to detectable levels…we do not want to create a gap as we're transitioning our accreditation over to WSDA,” and rules were “intended to not disrupt the current state, and if there are changes that need to be made regarding certain standards…we're going to address that in a separate rulemaking.”
  • WSLCB was required to evaluate the potential costs on licensees imposed by rulemaking changes, and West acknowledged staff “applied a default cost of $2,000 when analyzing whether the rules would have a disproportionate impact on small businesses. The minor cost estimate…does not exceed the threshold for any of the license types. Therefore, the implementation of these roles are not anticipated to result in more of a minor cost on businesses, as defined in RCW 19-85-020.”
  • Postman inquired about WSDA quality standards: “when you were talking about…establishing the threshold, and then the standards that WSDA is working on as well. We, even though we're transferring the testing…that's not going to change our established thresholds…because those seem like they were getting mixed up there.” West responded, “this was before the [HB] 2151 rulemaking,” so instead of WSLCB rules directing the actions of labs they didn’t accreditate, the phrasing of the requirements would shift so that “cannabis licensees must use certified labs.” Any other overlap in cannabis lab rules would be reflected in WSLCB’s future implementation of HB 2151. Postman commented on how complicated the rulemaking had become, but “the whole point of this is to try to shut down the illicit market, which we believe is working on a loophole…it's not to apply pressure within the [legal cannabis] system, but we need to have rulemaking for ourselves so we can establish sort of the good side of the market” (audio - 3m, video - TVW, video - WSLCB).
  • Postman credited cannabis licensees for selling items with a “legitimate compound or variation” and working within the boundaries outlined by policymakers. “These people that are selling it outside the regulated- or are selling it by mail order… that's the focus for me,” said Postman. Gaining control of that market was “why we push[ed] this bill. That's why you've spent a year on the rules. And I hope we get some good support for that going forward” (audio - 1m, video - TVW, video - WSLCB).
  • The board voted to approve the CR-102 on SB 5367 implementation (audio - <1m, video - TVW, video - WSLCB).
    • Following the meeting, a brief change to the WSLCB Laws and Rules page on August 2nd stated: “Due to unforeseen technical difficulties, the filings of the CR-102 materials has been delayed.” Payment flexibility was indicated as being filed with the Washington State Office of the Code Revisor on July 31st, and SB 5080 and SB 5367 implementation projects were filed August 6th. Hearing dates for all three CR-102s were still listed as September 11th.

Information Set