WA Senate LC - Committee Meeting
(February 10, 2025) - WSLCB Work Sessions

A WSLCB staffer talked about retail ownership constraints as well as the social equity program before lawmakers raised general observations and specific questions.

Here are some observations from the Monday February 10th Washington State Senate Labor and Commerce Committee (WA Senate LC) work session.

My top 3 takeaways:

• Nicola Reid, Deputy Director of Administration in the Licensing Division at the Washington State Liquor and Cannabis board (WSLCB), briefed committee members on cannabis license ownership while lawmaker questions suggested potential blind spots in agency assessments.
  • Reid started with a straightforward count of cannabis licenses by type, “You will see that there [are] 794 producer/processor licenses, 157 producer only, 195 processor only, and 471 for cannabis retailers” (audio - 2m, video - TVW, presentation).
    • This estimate likely does not account for cannabis retailers on tribal lands within Washington state which a WSLCB provided spreadsheet from November 2024 indicated covered 31 retail stores. Research staff from the Washington State Institute for Public Policy (WSIPP) confirmed they’d asked WSLCB whether their licensing numbers had included stores opened through a cannabis compact, and confirmed those locations weren’t included in remarks to legislators in March 2024. At publication time, the most recently adopted tribal compact was with the Lummi Nation in June 2024.
    • Vice Chair Steve Conway sought clarity on the distinction between producer, processor, and producer/processor licenses, (audio - 2m, video - TVW) and on how distribution requirements led to the establishment of the transportation license type (audio - 1m, video - TVW).
  • Reid spoke about how the agency had the responsibility to investigate individuals with any ownership interest or who exercised control of a cannabis license, known as true parties of interest (TPI). She acknowledged their review involved background checks with fingerprinting, verification of in-state residency, a review of financial documents, and verifying no “ownership in what we would consider a cross-tier relationship” as vertical integration—when a producer/processor also owned a retailer license—was prohibited (audio - 5m, video - TVW).
    • Reid indicated that some business arrangements weren’t considered TPI, in particular landlords without common ownership, employees receiving bonuses, consultants receiving a flat rate, those with “an option to purchase” the license in the future, other entities contracting with a licensee, or financial institutions. She also noted that cannabis business financiers (“any individual or business entity contributing money to the cannabis business”) without an ownership interest or business control were exempt from the in-state residency requirement.
    • Considering licensee demographics, Reid’s presentation referred to statistics from a self-reported survey of owners from June 2021 which showed that “approximately 15% self-identified as Black or Brown” in the producer/processor category, and for retailers 19% reported their race as African American or Hispanic.
    • Reid explained that a 2019 law allowed for cannabis licensees to enter into contracts with outside businesses related to topics “such as intellectual property and branding agreements.” These contracts had to be reviewed by WSLCB staff to ensure contracts avoided creating TPI violations or vertical integration.
  • Chair Rebecca Saldaña asked about ownership constraints, specifically “how many stores people are able to own” (audio - 1m, video - TVW).
    • Reid stated someone could only own up to three producer and/or processor licenses, or up to five retail licenses.
    • Conway checked whether this limit was set by the 2012 legalization initiative or the legislature. Reid responded that it was set by the board initially, and that a law passed in 2017 raised the maximum number of retail licenses from three to five.
  • Senator Drew MacEwen raised concerns about management agreements circumventing the law on the five retail locations, pointing out, “I've heard of instances where there's…subsequently up to 15 [stores], because of the way they structure it on paper so that they circumvent the five…is LCB looking into that situation? And what actions are we taking?” (audio - 2m, video - TVW)
    • Reid answered that WSLCB officials reviewed management contracts provided to the agency and looked for what they "deem to be like control, buying power, and how much the contracted entity is being paid.” If there was suspicion “that a licensee is operating outside of the means of the initially reviewed contract, that is when Enforcement would come in [and] if warranted, do a complete audit on the business, the financials,” she said.
    • When MacEwen followed up to ask about consequences, she noted a range of possibilities depending on Enforcement findings, “which could be anything from a fine up to cancellation of the license.”
  • Conway wanted to understand whether retail density was evaluated by Licensing staff when considering approval of multiple licenses for one ownership entity (audio - 2m, video - TVW).
    • Reid responded that the original initiative mandated their agency coordinate with the Washington State Office of Financial Management (OFM) and agency leaders chose to contract with BOTEC to look at population data in determining the allotment of retail locations by city and county. “So the number of stores isn't really contingent on the location itself,” she told Conway, “you could hold five in Seattle if five allotments were available…the numbers is specific to the individual or entity, and then the numbers for each city or county was in response to the BOTEC report.”

• Reid then reviewed the status of the cannabis social equity program, highlighting barriers to entry and efforts to reduce them, along with emphasizing the power of local control over where equity businesses would be allowed to operate.
  • Starting with the background of the social equity program, Reid relayed that it had been created by HB 2870 in 2020 and was revised through SB 5080 in 2023. The changes in SB 5080 included increased retail allotments, and added new allotments for producer and processor licenses, she indicated (audio - 5m, video - TVW).
    • Agency leaders briefed lawmakers on the program in December 2024.
  • As of that morning, Reid stated that nine applicants had successfully secured their license and opened their businesses. Two other applicants had found a location, and 33 were still in the application process. According to Reid, finding a location that met the qualifications was considered a "big win.” The top obstacles communicated by applicants were finding a location, getting city or county permitting, and securing funding.
    • Locations were especially challenging, she said, “due to a landlord not wanting to rent to a cannabis business, or having really high rental amounts to do.” 
    • Reid said local bans and moratoriums had also been an obstacle as some local governments were uninterested in accommodating equity stores, or in some cases any cannabis businesses at all.
    • Finding start-up capital for a new business was also difficult, Reid noted.
  • Reid assured the committee that WSLCB was continuing to look at ways to reduce barriers to market entry for equity applicants. They were providing official letters to local authorities or prospective landlords explaining an entity’s status as a successful equity applicant, “hopefully to assist with some negotiations.”
    • WSLCB staff had also contacted local governments related to their cannabis licensing restrictions and offered to have the agency work with them. She mentioned that a 2015 ordinance in the City of Pacific restricting cannabis businesses had been revised in December 2024 following conversations with WSLCB representatives (audio - 1m, video - TVW).
    • The agency had also sent a survey to local officials to ascertain what they knew about their cannabis ban or moratorium or their ability to set local cannabis zoning. Reid shared that the survey language stressed that local governments didn’t have to cap the number of retailers in their jurisdiction anymore. “So for example, though [the State has] a 1,000 foot buffer, a local government…can change the buffer down to 100 feet for everything except for elementary, secondary school, and playgrounds,” she explained.
    • Following a question by Conway, Reid stated that approximately 80 total bans or moratoriums were active throughout the state. She did not have the data on what percentage of the state population they covered but committed agency staff to look into it (audio - 1m, video - TVW).
  • After highlighting the agency social equity blog, Reid concluded her remarks with process changes agency leaders planned to implement for the next equity licensing window. She relayed that applicants would register through a WSLCB portal which would transmit their information directly to the social equity contractor who reviewed eligibility. Applicants also wouldn’t have to register with the Washington Secretary of State nor pay a Business Licensing Services fee in order to apply. Once an applicant was “made aware that they're the successful applicant moving forward, then at that point, they would go and…form the entity if they'd like to apply through Business Licensing Services, and we, of course, would be available to assist and answer any questions throughout that process” (audio - 3m, video - TVW).

• Following the briefings, committee members raised questions about how population changes could impact licensing decisions and reflected on the impact of cannabis bans and moratoriums.
  • Saldaña expressed interest in seeing updated data around how population density had been changing. She commented that legislators had been “looking at updating the numbers overall for retail and producers because of the population change, and it hadn't been updated for many years.” Retail density had also come up during lawmaker consideration of the social equity program, she noted (audio - 1m,  video - TVW).
    • Director of Licensing and Regulation Becky Smith promised the Director of Legislative Relations Marc Webster would get back to them with that information.
  • Conway raised concerns about the distribution of licenses, given that some areas had bans and unnamed people had testified to oversaturation of retail, saying, "I think a lot is due to the fact that we have areas where we cannot locate these licenses.” He encouraged greater “understanding” of the dynamic, and he then drew a parallel between the restrictions and “dry areas like we used to [have] in liquor” (audio - 1m, video - TVW).