WA Senate LC - Committee Meeting
(January 27, 2025) - SB 5403 - Public Hearing

2025-01-27 - WA Senate LC - Committee Meeting - Takeaways

A supermajority of the 23 people who testified supported legislation to allow direct sale of cannabis flower by producers, although questions were raised about market impacts.

Here are some observations from the Monday January 27th Washington State Senate Labor and Commerce Committee (WA Senate LC) Committee Meeting.

My top 5 takeaways:

  • A staff review of SB 5403, “Allowing direct to consumer sales of certain cannabis products,” elicited questions from senators about safety requirements and sales limits.
    • With vertical integration of cannabis restricted by the original initiative in 2012, producers could only sell cannabis to licensed processors or other producers, while processors may sell cannabis to other processors and retailers. Power dynamics preferenced by this market structure led to several bills previously filed specifically for, or allowing, limited direct sales by producers and/or processors to consumers:
    • During the meeting, Committee Counsel Marlon Llanes briefed from the bill analysis (audio - 2m, video - TVW).
      • “Authorizes licensed cannabis producers and processors to sell cannabis flower directly to consumers if sales are limited to cannabis flower produced by the licensee and sales comply with specified limits,” to be set in rule by the Washington State Liquor and Cannabis Board (WSLCB). He noted that the legislation was specific to the sale of cannabis flower grown by that producer, and that producers would have to follow the same tax and reporting requirements as retailers.
      • Senator Derek Stanford asked if the rules would be less stringent than they were for other retailers. Llanes affirmed this interpretation, indicating “LCB is authorized to adopt rules on security and operational requirements, but they are…not allowed to be more stringent than those on the retailer” (audio - 1m, video - TVW).
      • Vice Chair Senator Steve Conway asked about the volume of cannabis a customer could buy from these new sellers. Llanes responded that consumers would have the same purchase limits regardless of where they bought cannabis (audio - <1m, video - TVW).
  • 15 people representing the cannabis sector and public voiced support for the bill, pointing to benefits for struggling growers and consumer choice, with an economic expert offering additional perspective.
    • Caitlein Ryan, Cannabis Alliance Executive Director (audio - 2m, video - TVW)
      • Ryan stated that the bill "represents a thoughtful and necessary step towards ensuring the longevity and vitality of our state's cannabis industry." She noted that producers were facing pressure in a market defined by "significant price compression and shrinking consumer participation" and that the legislation would "recapture consumers who value connection to farms over state regulation.”
      • While supporting the bill, Ryan acknowledged concerns from retail members and advocated for an amendment to limit annual sales of cannabis products by individual producers and processors, explaining that a cap would allow small businesses to benefit from direct-to-consumer sales while "preventing market consolidation or domination by larger operators.” And though the focus was on cannabis flower, she was receptive to allowing producer sales of other product types, such as "low dose beverages and medically compliant products.”
      • Conway pointed out the initiative that legalized cannabis created a three-tier system separating producers from distributors and retailers, questioning if the privileges in the bill were “open-ended.” Ryan answered that the bill was modeled after the wine industry, "so that folks could, direct from the farm, be able to purchase a limited amount of products from the farm that they're visiting.” Conway emphasized that limits were key (audio - 1m, video - TVW).
      • Stanford again expressed concern about potentially relaxed safety standards in a retail setting, in contrast to existing regulations on retailers. Ryan deferred to staff, but stated her understanding of the bill was that it "doesn't relax any of the standards," but "just guides LCB to not make them more stringent” for producers gaining the privilege of direct sales. Stanford clarified that the standards "could be, but it wouldn't necessarily be the same standard” as for stores. Ryan believed that backers of SB 5403 would be "open to tightening up that language" for clarity (audio - 1m, video - TVW).
    • Beau Whitney, Whitney Economics Founder (audio - 2m, video - TVW)
      • Rather than testifying in support, Whitney was ‘other’ on the legislation, explaining that the US cannabis market faced issues around taxation, access to financial services, and interstate commerce while state issues included consumer access, regulatory costs, and profitability. He shared that the economic health of the industry had come into question, with 17 states having negative growth in 2024, up from 10 states in 2023.
      • According to Whitney, Washington had experienced negative growth in 2023 and 2024, furthering the strain from economic and regulatory challenges. He also noted that there was a "saturation of supply capacity" in Washington, leading to a decrease in wholesale and retail pricing, with retailers averaging $2.6 million per year in revenue, which he described as below the economic threshold of viability.
      • Whitney suggested that allowing direct sales by farmers with appropriate controls focused on public safety could increase consumer participation and demand, potentially increasing pricing stability along with a synergistic benefit for retailers. He claimed that legal participation in the market was at 51% right now, meaning 49% of sales were to unlicensed businesses and untaxed, and that the state was losing over $400 million due to the lack of participation in its tightly regulated marketplace.
      • Ranking Member Senator Curtis King asked about the impact of high taxes on the cannabis industry. Whitney commented that consumers were willing to pay a premium in the legal marketplace, but only if the premium was not too high. He suggested a sweet spot between 10 and 15%, and claimed that at a taxation rate of 25% versus 37%, legal market participation would increase from 51% to 79%. Whitney further argued that a lower tax rate would result in a net benefit in terms of tax revenue for the State due to a larger tax base (audio - 1m, video - TVW).
    • Tamara Weinmann, Bellevue Cannabis Company Owner (audio - 2m, video - TVW)
      • Weinmann stated that the cannabis industry "begins and ends with the flower that the farm grows" and that there were costs associated with growing plants, maintaining equipment, and developing new cultivars. She explained that financial risks limited her ability to grow certain strains that would benefit consumers because she was pressured to use varieties which had a "specific growth cycle or yield higher weights.”
      • Weinmann believed that if she had the ability to sell flower directly to consumers, she could better explain why certain strains cost more or look different, similar to how wineries explain grape varieties and harvest details. Moreover, she called flower a perishable product, “and I feel for the difficulty that the stores have in making sure that they sell it before it turns brown.” Weinmann reasoned that the legislation would benefit State revenue by boosting tax income and attracting customers away from the illicit market. 
      • According to Weinmann, direct sales would benefit retail stores because farms could "educate the consumer about our flower and then refer them back to the retail stores to buy all the other products that we also process.” She also stated that this would benefit the consumer by giving them the option to know where the product is coming from. In conclusion, Weinmann said that SB 5403 "just expands the pie for everyone involved.”
    • Douglas Henderson, Painted Rooster Cannabis Company Owner (audio - 1m, video - TVW)
      • Henderson stated that farmers wanted the opportunity to engage and educate consumers, saying that a farm like his in Yakima County was a "perfect place for someone to come and learn more about cannabis." He compared this effort with tasting rooms for distilleries and wineries or tap rooms for breweries, stating that cannabis producers would also like the opportunity to "directly educate.”
      • Henderson acknowledged the concerns of retailers and other producers, but stressed that direct sales would be on a "per case basis," and would give "more diversity and inclusion" for farmers within the state.
    • Ann'ette Pedigo, Cedar Creek Cannabis Owner  (audio - 4m, video - TVW)
      • Pedigo stated that Washington was the only legalized state that prohibited direct sales from producers to consumers, also known as vertical integration. She argued that allowing this practice provided smaller cultivators with an additional revenue stream and enhanced their brand visibility. Pedigo also noted that cannabis businesses in Washington were facing critical challenges, as "hundreds and hundreds of producers" had gone out of business due to the unsustainability of the market.
      • Despite generating over $60 million in gross receipts over the last eight years and being recognized as Clark County’s best grower eight times in a row, Pedigo stated that her company faced significant financial constraints every day, with a net operating loss year after year. She said that producers who were still in business were "holding out for any kind of shift in the market that would help us become viable." She claimed the high costs of making high-quality cannabis included production, trimming, curing, lab testing, packaging, delivery, sales, marketing, administrative, legal, and professional fees. To achieve a break-even point had become "nearly impossible," especially with retail prices continuing to decline, argued Pedigo. 
      • According to Pedigo, large retail conglomerates were already exploiting loopholes in vertical integration restrictions by acquiring bulk cannabis from struggling growers at reduced prices and then white labeling it, further undercutting the market and forcing smaller licensees out of business. She said this practice amounted to "cannibalizing the cultivators."
    • Rebecca Potasnik (audio - 2m, video - TVW)
      • Potasnik stated that she was a cannabis consumer who favored direct sales under the bill, mentioning how she did consulting work in the food system sector, supporting government entities and non-profit organizations. She said that direct sales channels were essential for many farmers, especially small-scale operators, generating between 50% and 75% of their total revenue. She remarked that such sales contributed to a higher likelihood of financial sustainability for small-scale operators compared to those who relied solely on wholesale markets, allowing producers to see higher profit margins and stronger consumer loyalty.
      • Potasnik argued that small cannabis growers faced similar challenges to other small farmers and needed access to diverse markets to succeed. She stated that if the legislature was serious about supporting small businesses, they must create an environment where those companies had the opportunity to flourish.
      • Potasnik concluded that the legislature has been interested in addressing social equity of the cannabis industry, and she said the bill furthered that goal by providing small growers with more options to reach markets, "just as we have done in the agricultural sector for farmers."
    • Nichole Graf, Raven Co-Owner (audio - 2m, video - TVW)
      • Graf indicated that Washington was one of the only states to have prohibited any vertical integration within its implementation of a legal cannabis market, and that this led to an inequitable economic model where the terms were set solely by those controlling the limited paths to market. She noted that small producers and processors had such slim margins that their businesses were not sustainable and unable to run in a responsible manner, paying their workers a living wage or embracing environmentally responsible regenerative practices.
      • Graf argued that small businesses were left in a position where every decision they made was based purely on maintaining the survival of their businesses rather than creating more sustainable practices, better products, or lasting relationships within their communities. She further stated there were no incentives provided to small firms to give them a chance to coexist alongside big business, leading to an increasing amount of market consolidation. Provisions for direct sales existed within comparable markets in the US, such as beer, wine, and spirits, and these allowances were the only reasons small businesses could have access to the market in relation to large corporations.
      • Graf concluded that it was crucial to preserve space for the integrity of small business within the state market, especially ahead of a federal landscape that prioritized corporate interests. She stated that all they were asking for was a fair chance to run their businesses and make a slightly more equitable profit margin in hopes of creating a viable business model for farms. After 11 years of resistance to a direct sales solution, Graf stated that it was more than past time to allow this path to survival a chance to be implemented.
    • Micah Sherman, Raven Co-Owner (audio - 2m, video - TVW)
      • Sherman noted that he had been working on the idea of direct sales since 2016, and this bill was limited to cannabis flower, which was a significant difference from past iterations. He mentioned that an amendment was being considered to limit sales to about 1000 pounds a year, which he said would be about one week's worth of sales for one of the largest businesses in the state, or the entire production capacity for smaller businesses, which SB 5403 was intended to help.
      • Sherman stated that all licensed cannabis businesses, whether they were retail, producers, or processors, were regulated by WSLCB and all had the same operational requirements related to the security of their facilities. He conveyed that there was no reason why they could not continue to operate responsibly in relation to oversight on direct sales.
      • He also remarked the legal cannabis market was only about 50% of the overall cannabis market, and without this policy, the state wouldn't be able to get full market participation in the legal system. He understood this as a fundamental goal of legalization, and would help address the declining revenue to the state, which he stated was down $140 million a year from its peak.
      • Sherman summed up that this bill would strengthen businesses, bring more tax money to the state, and do it in a safe and sustainable way.
    • Joshua Sheets (audio - 2m, video - TVW).
      • Sheets, who identified himself as the author of "Homegrown Marijuana" and a lifelong nurseryman and gardener, believed that oftentimes laws didn’t take into consideration the actual realities of horticulture or advancements in horticultural technologies. He mentioned things like plant counts and leaving out processions for transfer of clones, or holes in the supply chain, such as medical patients having difficulty purchasing plant clones. Sheets argued all these things factored into the absence of 100% participation previously discussed. He stated that as interstate transfer of cannabis became possible, State officials needed to stay focused and “on the ball.”
      • Sheets attested that the proposed legislation wasn’t a problem for medical or home growers—which he also supported—and would further modernization of cannabis production. He summed up, “we've been standing still too long.”
    • Scott Mckinley, Cantanna Festival Organizer and licensed processor (audio - 3m, video - TVW)
      • Mckinley reported that he had watched as retail stores drove the price of cannabis down to a point where most licensees couldn’t afford to operate, resulting in the loss of hundreds of producer-processors in the preceding years. He stated that taxes were over 47.5% of the price of every cannabis product, and some retailers required a 30% discount to be on their shelves. He insisted that despite hearing such a discount was passed on to consumers or used for marketing he’d never seen his brand on a retailer's website. According to Mckinley, the “monopoly of retail has left companies facing a 75% cut to the bottom line,” and while some retailers were good players, he felt most brands lowered their price just to break even in hopes of this change coming.
      • Mckinley called for more outlets for cannabis sales statewide, including producer-processor tasting rooms, consumption lounges, and event permits for festivals. He also wanted more outlets “so that we can raise the price back up to where it was when we started this.” He found prices had dropped so low it was “a gut punch” for retail businesses to take an additional 30% off the advertised price in order to be on their shelves. “It's not something that we can withstand anymore,” he concluded.
    • Benjamin Ogren, Bridge West Consulting Vice President of Sales (audio - 2m, video - TVW)
      • Ogren, who stated that he had worked as a sales representative in cannabis in three states, claimed that the majority of cannabis smoked in Washington was not sold at licensed retail stores and that the State's sales data does not line up with established demographic trends. He advised that the retail environment was too expensive for the majority of consumers because cannabis went through a three to four time markup before it was on shelves. According to Ogren, this had entrenched the black market and guaranteed those same profit margins for those operators.
      • He remarked that SB 5403 would allow the cost of cannabis for consumers to be cut in half while maintaining the same tax revenue for the State. Ogren also stated that the State was missing out on potentially hundreds of millions of dollars in revenue from sales and wages. He was skeptical that the measure would negatively impact existing retailers or jobs, as the selection and service that they offered would not be reproduced at production facilities, adding that “daily consumers of cannabis are, by and large, not buying cannabis at the taxed dispensaries.”
      • Ogren stated that the proposal would bring dollars onto the State's ledger and increase potential for innovation and investment. He stated that it was a known fact that the Washington marketplace was not profitable, and argued voters would remember if the legislature “made weed cheaper.”
    • Anthony Golden, The Real Kush Family LLC (audio - 3m, video - TVW).
      • Golden shared that he had been a farmer his entire life, and when cannabis legalization was on the ballot, growers were promised a chance at the American Dream. But he felt that promise had not been kept.
      • According to Golden, in eight years as a licensee, he had “witnessed countless farms go under” due to a system rigged against them which allowed retailers to exploit growers at their mercy, forced to accept low prices for their products, “which the retailers then mark up exorbitantly.” He said, "It feels like we are negotiating with guns to our heads to sell our products and keep our business open."
      • Golden said that building relationships with store buyers was crucial to their survival, but the relationships were often fleeting due to the retail high turnover rate, which meant “constantly starting from scratch.” He added that this instability prevented them from providing employees with fair wages and benefits, forcing his family to work seven days a week just to scrape by.
      • He commented that he dreamt of direct sales, delivery services, or farmers markets, which could give them a “fighting chance against a rigged commercial world.” The bill would create a more level playing field where they would still need retailers, but the ability for producers to generate their own revenue independently and pay their monthly bills could be a lifeline, helping them to survive until federal legalization.
      • Many farmers didn’t speak up for fear of being “blackballed by our retailers,” he stated, adding producers were already highly taxed, yet denied the right to sell their own products. He urged the legislature to protect Washington farmers and farm workers, stating that it was not too late to correct the mistakes that have been made and create a fair and equitable cannabis industry.
    • Rian Takahashi, United Western Green LLC (audio - 1m, video - TVW)
    • Brendon Weinmann, 30th St Productions (audio - 1m, video - TVW)
      • Weinmann acknowledged that some of the previous pushback from retailers was based on the fear that farms would steal sales from them. He suggested that retail sales had been “primarily to [vapor] cart[ridge]s and edibles. This bill…shields and protects the stores from that, as it limits us to only flower sales.”
      • According to Weinmann, the education that farmers could provide to consumers would help retailers because efforts to educate budtenders were undercut by high staff turnover.
    • Jeremy Careaga (audio - 2m, video - TVW)
    • Ryan Sevigny, Landrace Brands President and Cannabis Alliance Board Member (audio - 2m, video - TVW)
      • Sevigny stated that he was the owner of a tier two producer/processor and was signed in pro on SB 5403. He proposed several “rhetorical questions” for legislators to consider, suggesting that a cannabis consumer could “walk into almost any retailer in the state and receive, every day of the week, a 30 to 50% discount?” He alleged that some licensed retailers effectively controlled more than the maximum of five stores, engaged in exclusive contracts with processors, white labeled products, and half of consumers relied on the unlicensed market to source cannabis.
      • To Sevigny, the current market structure had significant oversupply and limited pathways to market, which caused the cannabis industry to devolve into an unsustainable space for small farmers. He viewed SB 5403 as a lifeline alleviating financial pressure and creating limited opportunities for direct consumer engagement with small farmers, which would foster sustainable, safe business ecosystems.
      • Following Sevigny's testimony, King asked where he was from. Sevigny responded that he lived in Edgewood, while his farms were in the Okanogan region (audio - <1m, video - TVW).
    • Atina Holan and Anders Taylor signed up to testify in support, but were not available when called by staff.
    • In addition to those testifying, 205 signed in as supportive of SB 5403 (Testifying, Not Testifying).
  • Representatives for two cannabis trade groups, a public health association, and a prevention group provided criticism of the bill for modifying vertical integration restrictions, complicating moratoriums on cannabis sales, and potentially increasing risks of underage access.
    • Brooke Davies, Washington Cannabusiness Association (WACA) Deputy Director (audio - 2m, video - TVW)
      • Davies explained that while WACA appreciated the limited scope of the legislation, their membership remained opposed, relaying a feeling the measure was "opening the door to vertical integration." She called out how some proponents were already asking to expand the legislation to more product types, which would "fundamentally change the market, which right now is not vertically integrated.”
      • Davies stated that WACA had concerns about how producer sales would take place, noting that the bill language had WSLCB adopt rules that could be less stringent than current retailer rules. She also raised concerns that producers would be "selling below cost," and other issues which were currently stipulated in the retail sector. Davies alleged that jurisdictions that restricted sales of cannabis may be sidestepped by a producer under the bill.
      • Davies claimed WACA members were open to conversations about how to help smaller farms, but remained opposed to direct sales as envisioned in SB 5403.
    • Trent Matson, Washington Cannabis Licensee Association (WCLA) Lobbyist, audio - 2m, video - TVW, written testimony)
      • Matson asserted that the WCLA had the largest membership of I-502 license holders in Washington, and were "respectfully in opposition" to SB 5403. He suggested the measure would “negate the intent” of Washington’s vertical integration restriction. He argued vertical integration models in other states, such as Oregon and California, resulted in "price pressures, consolidation, and market instability." Matson insisted Washington was among the only states with profitable businesses and a diverse consumer experience. He stated the legislation would only benefit some growers based on their location and zoning, while putting additional pressures on small and medium retailers. He added that market stability was critical to maintaining revenues and that WCLA believed it would be best to maintain existing market conditions.
      • Matson concluded that although the prime sponsor and co-sponsors of the bill “are well-intended, WCLA feels that 5403 does not accomplish in practice what it intends on paper.”
    • Meghan Moore, Washington Public Health Association (WPHA) Executive Director (audio - 2m, video - TVW)
      • Moore talked about the risks to youth posed by legalizing home delivery of cannabis to adults, which wasn’t the subject of the bill.
    • Scott Waller, Washington Association for Substance Misuse and Violence Prevention (WASAVP) Board Member (audio - 2m, video - TVW).
      • Waller expressed sympathy for the intent of the bill to help struggling licensees, but insisted there could be “unintended consequences and potentially more downsides than upsides.” He said that research showed that the greater the number of outlets selling substances, the greater the likelihood that young people perceived that use of those substances was widely accepted, which in turn influenced young people’s own decisions regarding use.
      • Waller also commented that he was concerned about the negative impact legalizing producer sales may have on efforts to control youth access to cannabis products. He admitted that prohibiting youth access to cannabis retail outlets had been quite successful, “with a 94% [compliance] rate reported by the Liquor and Cannabis Board.” However, Waller claimed that many young people used fake identification to access alcohol and tobacco products, positing that “that could happen with these new cannabis retailers as well.”
      • Another concern of Wallers was the potential for an increased number of smash-and-grab break-ins, particularly since producer-processors were more often in unincorporated areas. He felt there were “unknown fiscal and system impact questions associated with the bill.” Waller suggested a “more prudent approach would be to fund the LCB to implement a study of these impacts this year and to use the report from that study to inform policy in a future legislative session.”
    • In addition to those testifying, 308 signed in opposed to the bill (Testifying, Not Testifying).
  • One representative of a cannabis producer and two members of Black Excellence in Cannabis (BEC) took a position of ‘other’ on the bill, expressing concerns about which facilities qualified, as well as possible impacts to social equity licensees just joining the market.
    • Kelsey Taylor, Walden Cannabis Chief Operations Officer (audio - 2m, video - TVW)
      • Taylor said that the cannabis industry was “filled with struggling producers due to over taxation and oversupply without the ability to sell directly to consumers,” dependent on retailer control of shelf space and access to customers. She stated that allowing direct sales of flower would help producers survive, and she fully supported that goal.
      • The problem for Taylor was a perceived lack of clarity over the definition of a "licensed business entity." She explained that at Walden, the company farmed in Okanogan County on the east side of the state, but had a distribution facility on the west side. They held separate producer and processor licenses, and asked if the licensed business entity was interpreted narrowly to require the same license number.  If so, they would not be able to sell their farm's products through their west side distribution center where most of their customers were.
      • According to Taylor, this disadvantaged east side producers, furthering a trend of resources and opportunities favoring the western half of Washington. She stated that tax revenue from cannabis often didn’t return to east side communities, despite the significant farming contributions that they make. She urged the committee to ensure that the bill would not unintentionally deepen disparities.
    • Mike Asai, BEC Vice President (audio - 2m, video - TVW)
      • Asai stated that former medical cannabis dispensary “pioneers like myself and many others supersede I-502,” but “were cut out of the industry unjustly.” He mentioned that 45 licenses had been approved as part of the WSLCB social equity program, and “soon will be 60 more retail” licenses to give producers more paths to market. However, to change direct sales statutes as equity businesses came online “seems like a real disservice” for those businesses,” Asai said.
        • Representatives Kristine Reeves and Debra Entenman have introduced HB 1551, "Extending the cannabis social equity program," which would require WSLCB and the Washington State Department of Commerce (WA Commerce) to create a report to the legislature on the first round of the social equity program for publication by December 2025. The measure also would defer a second round until at least July 2026, and extend the program an additional two years until July 2034.
      • Asai pointed out that the bill mentioned how $3 billion had been made since Washington began licensed and taxed sales, “and barely 1% of Black descendants of slaves have been able to profit from that.” He hoped for “something with social equity implemented into this bill,” as well as a “positive dialogue with State officials.” Asai wrapped up by stating that BEC supported growers, “but we just think there’s another pathway that could be for this.” 
    • Peter Manning, BEC President (audio - 2m, video - TVW)
      • Manning echoed Asai’s remarks, wanting people to “come together” and ask questions about “what is the problem in the cannabis sector anyway? What's going on there? Why is it some are doing good; some are doing bad. Is there collusion? Is there corruption?”
      • Manning stressed that it was difficult “to have a voice on this, because the Black and Brown community…was affected so partially by this State when it came to being included in this industry, that it's hard to speak on it without being involved in it.”
  • The bill sponsor, Senator Rebecca Saldaña, joined the conversation near the end of the hearing to share her gratitude for the testimony and the questions raised by her colleagues (audio - 1m, video - TVW).
    • Saldaña, Chair of WA Senate LC, was not present for the majority of the committee meeting. Speaking up just before the final testifier, Saldaña explained that she had been listening to the hearing remotely.
    • “I really appreciate everyone speaking up and weighing in on Senate Bill 5403 including some of my colleagues’ questions,” she said. Saldaña indicated she was “looking forward to working with everyone to see if we can get this and take some amendments…into consideration, but see if we can move this bill forward this session.”
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