WA House COG - Committee Meeting
(March 19, 2019) - SB 5318

The House Commerce and Gaming Committee hosted a public hearing on SB 5318 - “Reforming the compliance and enforcement provisions for marijuana licensees.”

  • Details on SB 5318's Senate policy committee public hearing and executive session, and the Senate fiscal committee public hearing and executive session. Engrossed Substitute SB 5318 (ESSB 5318) was passed by the full Senate on March 11th with one striker amendment.
  • SB 5318 has been a steady focus of attention at WSLCB since the arrival of a letter from the bill sponsors in early January. By late February, the agency was concerned about the House companion bill HB 1237 and experiencing unusual external pressures. By early March, the agency was in private negotiations seeking compromises with particular industry representatives and legislators.
  • More recently, additional industry groups have joined. It’s Cannabis Observer’s understanding that WACA, the Cannabis Alliance, the Washington Sungrowers Industry Association (WSIA), the Cannabis Organization of Retail Establishments (CORE), and the Washington Federation of State Employees (WFSE) are participants in the compromise discussions.
  • Here are draft documents (March 16th) describing WSLCB’s parallel Cannabis Penalties rulemaking:
  • Peter Clodfelter, Committee Counsel, briefed representatives on ESSB 5318’s proposed effects (audio – 4m, video). From the House Bill Analysis:
    • Modifies how the Washington State Liquor and Cannabis Board (LCB) may enforce laws and rules against regulated marijuana businesses, and how these businesses may comply with laws and rules.
    • Creates a process for the LCB to issue notices of correction instead of civil penalties in certain circumstances.
    • Requires the LCB to expand its compliance education program for licensees, including providing a process for licensees to apply to receive consultative services regarding compliance with applicable laws and rules.
    • Requires rulemaking by the LCB prescribing penalties for violations, with limits, such as on what types of violations may result in license cancellation when a heightened evidentiary standard is met.
    • Prohibits the LCB from considering any violation from before April 30, 2017, as grounds for negative licensing actions, except for specific types of violations, including furnishing marijuana products to minors and diversion of product, when a heightened evidentiary standard is met.
    • Limits when civil penalties may be applied in circumstances involving employee misconduct.
    • Modifies the LCB’s settlement conference and settlement agreement process.
    • Establishes a Legislative Work Group on Cannabis Enforcement and Training Processes and Procedures, with a report to the Legislature by December 2019.
  • Senator Ann Rivers testified as the legislation’s sponsor, saying it represented “three and a half years of concerns raised to me by the industry.” Rivers said she’d toured businesses in the state and had “a pretty good idea of what’s really happening out there.” She reported the lack of uniformity in the application of “rules and laws” was a consistent refrain from Washington’s cannabis industry. Rivers said businesses wanted to know WSLCB officers “see things the same way.” Noting the “high stakes” for many licensees, she concluded they just wanted fair treatment. River said the “nascent industry” needed better protection and commended the bill as “fair, reasonable” and a “solid approach to take” negotiated by stakeholders (audio – 3m, video).
  • Brooke Davies, speaking for WACA, said the organization was ”really proud to bring this legislation forward” because “compliance reform is critical” to businesses. She reminded members of stories about enforcement from licensees and said the bill would “help businesses that are acting in good faith to come into compliance instead of shutting them down.” Davies said stakeholders had met with WSLCB the previous day to review a reformed penalty matrix the agency was considering, and that WACA was still working with Representative Steve Kirby on a potential amendment (audio – 3m, video).
  • Ty Camp, owner of Vancouver-based Sunshine Farms, said he “wanted to do the right thing for my family.” He asked lawmakers for help with true parties of interest (TPI) rules, which he believed were being used as a “catchall” for a “small mistake” routinely made by otherwise honest licensees. He said he was afraid of contacting his enforcement officer as it might lead to further violations for him. Citing a business he knew which had closed rather than fight, he grimly observed: “A TPI violation today is a death sentence to an I-502 business” (audio – 3m, video).
  • Wendy Hull, owner of Fairwinds Manufacturing, summarized the bill as “a much needed reset” for regulators and the industry. She said Fairwinds wasn’t facing violations, but wanted to support businesses that were trying to become compliant. She hoped the bill would help licensees and WSLCB “work together, rather than against each other” (audio – 1m, video).
  • Chris Masse stated that her firm had defended clients facing WSLCB-issued violations and seen several “themes” emerge. Masse claimed her clients typically did not intend to break rules, but rather “naivete” resulted in the assessment of violations for reasonable rule interpretation. She felt the industry and regulators faced a “steep learning curve” building a new marketplace, and her clients were willing to be accountable and “live to see another day and not get shut down” (audio – 2m, video).
  • Lawmakers had a couple of questions and a comment for the panel (audio – 4m, video).
    • Kirby said he’d be sharing a staff-drafted amendment with stakeholders soon.
    • Representative Melanie Morgan spoke candidly about how she empathized deeply with what had been said: “The reason why I relate to your story so well is because as a black woman I face the same things. That I’m afraid to call law enforcement to help me with issues, fear that it might go awry.”
    • Representative Brandon Vick asked about Camp’s settlement with the Attorney General. “Could you just maybe dig in a little deeper as to what that process looked like and how we got to this point where two settlement, generous settlements I would say, were rejected?” Camp said he was surprised how the settlement conference for him was not an opportunity to prove innocence or fight a charge, but rather necessitated an admission of guilt. He then said the extreme cost of defending his business in a trial meant it was preferable to settle with a pricey fine and guilty plea – which in his case WSLCB Board Members rejected anyway without examining the specifics of the accusations or Camp’s defense. Camp claimed, “You’re guilty until you pay yourself innocent.”
  • Bryan McConaughy, representing the Washington Sungrowers Industry Association (WSIA), told the committee he was a “conditional pro” based on Kirby’s promised amendment (audio – 1m, video).
  • Lara Kaminsky, Executive Director of the Cannabis Alliance, supported the bill and Kirby’s amendment. She praised the teamwork on the issue, saying it preserved a focus on educating into compliance while letting WSLCB pursue “chronic offenders” (audio – 1m, video).
  • John Jung, a WSLCB Enforcement Officer with over a decade of experience with the agency, testified as a “private citizen” on the bill. He explained he worked around Rainier Valley, Beacon Hill, and Mercer Island and that over the years he’d been asked to participate in what he considered “unfair and inconsistent application of policies, procedures, and laws to the public.” Jung went on to say this wasn’t limited to cannabis enforcement and that he’d been raising concerns with the agency for five years “without much success.” He hoped the bill would help make the agency “more accountable and transparent with their operations” and praised the proposed task force and WSLCB ombudsman. Jung said the complaint process was so broken he’d even advised a licensee to contact the FBI. He said “the majority” of business owners in these cases were racial “minorities or immigrants.” Jung promised to produce agency emails and “detailed examples of false warrant, inconsistent application of warrants and policies” to back up his assertions to the committee. He indicated he was already “at odds” with WSLCB (audio – 3m, video).
  • Committee members had several follow up questions (audio – 8m, video).
    • Assistant Ranking Member Kelly Chambers wanted to know more about his agency training for interactions with licensees. He said inconsistent application of policies arose from “inconsistent training” for officers with varied law enforcement experience. Jung said there were “non-peace officers in Washington State that are carrying firearms concealed for our work” and alleged violation of state weapons law (RCW 9.41). He said a public records request he’d made had documented another non-peace officer making false claims on a warrant. He called recent media attention to the “toxic culture” of the agency “very true.”
    • Vice Chair Kristine Reeves asked for ways to address deficiencies in WSLCB’s culture and more “examples of what that toxicity looks like.” Jung responded that the agency had undergone significant restructuring since liquor privatization and cannabis legalization: “They went from regulators, to police in lightspeed.” He explained he had not been through the state’s Criminal Justice Training Commission (CJTC) yet was “supposed to pretend that I’m a cop.” Jung said that after he raised these issues he had gone from a “superstar” at WSLCB to being reprimanded and investigated while taking a medical leave. He alleged the agency had “harassed and retaliated” against him and that current and former Enforcement staff would agree. He concluded by suggesting the agency’s “Electronic Notebook” for enforcement was so ineffective that the Systems Modernization Project (SMP) was being used as a pretext to fix it.
    • Ranking Member Drew MacEwen recognized the difficulty in Jung’s testimony, and requested notification if he faced any “retribution” from the agency for speaking out. Chair Derek Stanford said he’d like to be informed as well.
      • The following day, during WSLCB’s Executive Management Team (EMT) meeting on Wednesday March 20th, Director Rick Garza suggested it was best if those in attendance “hear the committee hearing that was held yesterday.” He acknowledged concerns not just from licensees but “one of our own” in reference to Jung. Garza said he would meet with Commerce and Gaming Committee members and some senators the following week to shore up support by sharing the agency’s draft penalty rule revisions. Regarding Kirby’s pending amendment, Garza said a raised evidentiary standard had been removed and the Board’s ability to overturn settlements had been maintained provided they give “substantial deference.” He also shared the request for proposals (RFP) for an independent consultant to study agency enforcement, a proactive measure recommended by Governor Jay Inslee in response to lawmaker concerns. He expected RFPs to be “scored” next Monday and would “try to look at interviews later next week.” Garza concluded: “Despite the hearing, and the concerns that were raised there, I think the good thing to know is that bill’s about as good, I think there was a real compromise that was done between everyone on that bill” (audio – 10m).
  • Chris Thompson, speaking for WSLCB, testified as “other” on the bill while speaking favorably of draft language he’d seen to amend it. Thompson liked the “direction of the conversation” with stakeholders. He said a “critical” part of the bill was allowing licensees to consult with agency staff without fear of receiving a violation. He reiterated progress on new penalty rules and a belief that the agency and stakeholders would find a compromise on rule and statutory changes soon (audio – 4m, video).
  • Seth Dawson, lobbying for WASAVP, testified as “other” saying he’d gladly be “pro” if WSLCB and the industry could agree on language. He admitted being unable to “deny the business complaints that you’ve heard” but called most cannabis businesses “reputable” despite “honest disagreements” his group had with them (audio – 2m, video).
  • Lawmakers wanted to know more from Thompson (audio – 2m, video).
    • Representative Shelly Kloba asked “how many licensees have lost their licenses” in total and due to TPI violations. Thompson was uncertain, but referred back to an earlier work session the committee hosted and promised to respond with further information.
    • Reeves inquired if this was from the slidedeck at that work session. “I’m not aware of any change in those numbers since we shared that with you,” Thompson said, but noted it didn’t address TPI specifically.
  • Laurent Bentitou, owner of Ceres Holdings, a tier 3 producer/processor in Bellevue, said he supported the bill because the state’s model was “incredibly punitive” regardless of licensee efforts to comply. Bentitou claimed, “The way in which the rules were architected, it’s almost impossible to operate without a high degree of anxiety and stress.” He said he believed the bill would move the industry towards a “public-private partnership” to “build a better system” (audio – 3m, video).
  • Legislators asked several further questions (audio – 9m, video).
    • Reeves tried to learn more about WSLCB’s balancing of state laws and potential federal enforcement, and if the bill helped that. Bentitou said it “absolutely does” from his perspective, claiming other state models were more reasonable without being “lawless” and “the ways that we interpret the laws here is draconian.” Reeves asked about enforcement in other states and whether the bill went far enough to address the punitive culture at WSLCB. Bentitou answered there were “many fine field officers” but the laws were currently arranged to avoid discussion of intent in prosecuting violations. He said he supported regulation that didn’t treat punishment as necessary for every identified problem and that the industry can “remediate” problems better. He added, “I don’t know if it would change the behavior at the top, but it sure would change the behavior at the bottom.”
    • Kirby added that he convened “mucky mucks” from WSLCB and shared his skepticism about their institutional ability to respond to criticism. He said the issue was tough to legislate but that agreement from regulators and the industry on his upcoming amendment would establish common ground.
    • Chambers wondered if the knowledge shared in other franchised industries could improve the standing of struggling cannabis businesses. She asked if Bentitou had reached out to other states about their best practices. He said he could share notes and wanted to be clear he did not have “beef” with any state agency, but wanted less draconian rules.
  • ESSB 5318 is scheduled for executive session in the Commerce and Gaming Committee on March 26th at 3:30 PM.