WA House RSG - Committee Meeting
(September 17, 2024) - WSLCB Updates

WSLCB leaders reviewed how a patient excise tax exemption was being implemented, their ambitions for a new traceability system, and the processes for cannabis testing and analysis.

Here are some observations from the Tuesday September 17th Washington State House Regulated Substances and Gaming Committee (WA House RSG) Committee Meeting.

My top 3 takeaways:

• Washington State Liquor and Cannabis Board (WSLCB) Director of Policy and External Affairs Justin Nordhorn took legislators through agency work to implement HB 1453, “Providing a tax exemption for medical cannabis patients,” and answered questions.
  • The law—passed on March 14th—expanded a previous patient exemption on sales and use taxes by removing the 37% excise tax, but also narrowed the application of the exemption to only be offered by medically endorsed retailers selling Washington State Department of Health (DOH) compliant products to patients registered with the department.
  • Nordhorn began the panel by reviewing how patients could be eligible to receive the tax exemption, along with the remaining timeline for the rulemaking project  (audio - 9m, video - TVW, presentation).
    • To qualify for the exemption, Nordhorn explained the sale must occur at a licensed cannabis retailer with a medical cannabis endorsement, the patient must have a recognition card issued by DOH, and the product must be identified as medically compliant "high CBD [cannabidiol]," "high THC [tetrahydrocannabinol]," or "general use" cannabis products by department staff.
      • DOH staff hosted a webinar on the medical cannabis program more broadly on July 18th, and have scheduled a workshop on the program for October 17th.
    • While the bill took effect in June 2024, he indicated that rulemaking took time. Draft rules were filed in July, a public hearing was held in August, and the final rules were approved September 11th. Nordhorn relayed that the rules would become effective on October 12th.
      • WSLCB staff also hosted focus groups on the rulemaking project on June 3rd and 6th.
    • On recordkeeping and audit policies, Nordhorn commented that endorsed stores would be required to maintain detailed records to ensure compliance and facilitate audits. This included documenting the date of sale, product information, and the patient's unique identifier from their DOH recognition card. "And so, having those records together is a real benefit to the retailer. Other document recommendations [included] encouraging folks to save monthly sales tax reports from the point of sale system so that they can showcase that with the information around the COAs,” he said.
    • Nordhorn then described agency rules changes and oversight of the tax exemption, while highlighting obstacles ahead. Regarding packaging updates, he said there’d been "some challenges with that, particularly the liability of the retailer.” To address this, Nordhorn remarked WSLCB Licensing staff created a “streamlined approval approach” for existing products through a dedicated email: LabelApprovalMED@lcb.wa.gov. He also noted with only two labs accredited to test for heavy metals in the state at the moment, that licensees might be waiting on supplementary certificates of analysis (COAs) for as long as it would take agency officials to review and approve label updates (audio - 2m, video - TVW).
      • According to WSLCB records two additional labs, Testing Technologies, Inc and Green Grower Labs were also certified to test for heavy metals as of June 2024. 
    • Information sharing had also emerged as a challenge, as Nordhorn explained WSLCB needed to collaborate with DOH to verify patient cards. He indicated that circumstance may require changing current law (audio - 2m, video - TVW).
      • Nordhorn told the committee that WSLCB was pursuing an agency request bill to allow information sharing in a process similar to one established between DOH and the Washington State Department of Revenue for tax audits. He relayed that their Financial division would work with DOH to conduct audits to ensure proper application of the exemption. This would involve collaboration with DOH personnel to verify patient cards, but Nordhorn stressed that no personal information would be collected in this process.
        • WSLCB Director of Legislative Relations Marc Webster talked about this, and another cannabis request bill leaders planned to pursue, on September 10th.
  • Representative Kristine Reeves asked for and received elaboration on what information would be shared between WSLCB and DOH conveying why a proposed legislative change would be beneficial (audio - 5m,  video - TVW).
  • Committee Co-Chair Sharon Wylie was interested in knowing about market changes since approval of the tax exemption, asking if unregistered “medical patients and potential retailers who haven't sought” medical cannabis endorsements were “trying to do that? Has there been an influx of patients trying to get certification cards and retailers wanting to be eligible for the certification?” (audio - 2m, video - TVW)
    • Nordhorn acknowledged “a number of retailers’ interest [plus] a number of processors that are trying to get…medically compliant product into the market.” He referred questions on patient engagement to DOH staff, but did note “we have folks that had basically tried to set up some online medical card approvals” which weren’t allowed under existing law. Moreover, “one of the big challenges for the retailers is they're solely accountable for the excise tax collection and exemption, and so the processors, if they're not putting the qualifying product in appropriately, then the retailer’s at risk.”
  • Wylie then inquired whether the new law was leading to medically compliant products which had been tested for heavy metals becoming more available (audio - 1m, video - TVW).
    • Nordhorn shared that “there is product on the shelf that has that,” and while previously there’d been “a few producer processors” manufacturing medically compliant products, “we are seeing an increase in product availability in the stores, which is, of course, one of the patient interest points.”

• Director of Legislative Relations Marc Webster talked about what officials were looking for in a new traceability platform, including suggesting the system needed to prepare to handle interstate commerce (audio - 6m, video - TVW).
  • The Cannabis Central Reporting System (CCRS) became operational in December 2021, but by July 2023 a traceability-focused Request for Information (RFI) seeking a third-party traceability vendor to take the place of CCRS came to the attention of the public, with Cannabis Observer Founder Gregory Foster among those calling for greater transparency by WSLCB leaders.
    • WSLCB Staff briefed on the traceability effort the following month.
    • Deputy Director Toni Hood discussed a traceability survey and new staff working on the effort to replace CCRS on August 14th.
    • At publication time, it was Cannabis Observer’s understanding that WSLCB staff had begun reaching out to engage stakeholders on ways to “improve the traceability and reporting system.”
  • In the work session, Webster described traceability as “systems to track cannabis plants through processed products and ultimately, sales." He shared how Washington State had first utilized BioTrack from 2014 to 2017, followed by MJFreeway from 2017 to 2021, and then CCRS.
    • Bringing up HB 2320, “Concerning high THC cannabis products," Webster told the committee the law required WSLCB staff to use CCRS data starting in “December of 2024, and report back to you all in November of 2025,” with traceability data on cannabis product categories, THC concentrations, and other market information.
    • The transition to CCRS was announced publicly in August 2021 and the system became active in the final weeks of 2021, although staff hadn’t resolved most software issues until February 2022, concluding what staff referred to as the “original scope of work.”
  • "We think it's time to begin looking at what a better traceability system could look like,” said Webster. Agency leaders recognized the limitations of the current system and had “submitted a budget request to do broad stakeholder outreach to inform next steps. What do licensees want? What do public health folks want? What do consumers want? And for all of these, what do they not want to see?" He claimed that a new system could incorporate feedback and be designed to improve efficiency, accuracy, and transparency in the cannabis industry.
  • Webster continued, saying that officials were also thinking about how a new platform would work with an ongoing systems modernization project (SMP) at the agency, plus what traceability would “look like in a federally legal system” where cannabis could be sold between states like other agricultural goods. He argued issues such as the need for interoperability with other state systems, and balancing public safety with industry efficiency had to be considered as WSLCB staff developed the new system.
    • On May 16th, rescheduling of cannabis from Schedule I to Schedule III was proposed by federal authorities, with a reported 43,000 remarks being submitted during a subsequent 60 day comment period.
      • On July 23rd, the Congressional Research Service published a briefing paper: “Rescheduling Marijuana: Implications for Criminal and Collateral Consequences.”
    • Started in 2015, the SMP went through delays and the loss of a vendor in 2017 leading to a need for more funding, including almost $18 million in a budget request from November 2021. $35,278,000 from the liquor revolving account was approved for the effort in the supplemental operating budget signed into law on March 29th.
    • SB 5069, a law allowing interstate commerce of cannabis following federal authorization was approved by legislators in May 2023.

• Enforcement Captain Matt Murphy went through the different analytical testing pathways for cannabis in the licensed market, along with the sampling volume and lab analysis process (audio - 4m, video - TVW)
  • Sampling of cannabis and cannabis products for testing could be performed by both Compliance Consultants and Enforcement Officers, where regulators acted as an “evidence custodian, transport[ing] the sample” to the Washington State Department of Agriculture (WSDA) laboratory. Murphy noted the third pathway was licensee sampling and testing done by certified third-party labs.
  • A recent addition to the process was analysis of WSDA and third-party testing results by a WSLCB Chemist who Murphy stated had expertise in understanding cannabis testing, “and…those results are sent to Enforcement or Education if action is needed.”
  • According to Murphy’s presentation, the agency officials had conducted a significant number of complaint, investigative, and random samples in 2022, 2023, and 2024.
    • In 2022, WSLCB conducted 131 complaint or investigative samples, and 595 random samples.
    • In 2023, the agency conducted 166 complaint or investigative samples, and 419 random samples.
    • “And in 2024 so far this year, we've conducted 237 investigative samples.”

Information Set