The Board approved filing proposed changes to the rules defining true parties of interest in cannabis businesses and heard public testimony for the second time in the past five months.
Here are some observations from the Wednesday June 24th Washington State Liquor and Cannabis Board (WSLCB) Board Meeting.
My top 3 takeaways:
- The Board approved filing proposed changes to the rules defining true parties of interest in cannabis businesses.
- Policy and Rules Manager Kathy Hoffman went over the proposal the day before during the June 23rd Board Caucus.
- True Party of Interest (TPI, WSR 18-22-054, audio - 6m). Hoffman said that the CR-102 containing proposed rule changes was ready for their approval prior to filing the document with the Washington State Office of the Code Reviser (OCR). She outlined how WAC 314-55-035 on cannabis license qualifications was established in 2013 and last updated in March 2016. TPI rules were intended to “preclude the establishment of vertical integration and the potential for criminal enterprise consistent with RCW 69.50.562(2).” Hoffman stated that restrictions were meant to “discourage monopolies and organized crime.”
- The CR-101 on TPI was opened in late October 2018 following significant stakeholder comments on the topic. The rulemaking project’s scope was later revised to include HB 1794 which was signed into law in May 2019 pertaining to intellectual property, royalties, and licensing agreements. “Since there was potential for the substance of that bill to influence revisions being considered for this particular rule,” Hoffman observed, “the project was temporarily paused” before restarting and incorporating the new law.
- Hoffman said the proposal was the “result of protracted and extensive stakeholder engagement” starting in 2018 and going through the project's May 20th listen and learn forum.
- Hoffman reviewed a memorandum on the proposed changes which included an updated section title and structure, “modernize[d]” TPI language with new definitions for “control,” “financial institutions,” “gross profit,” “net profit,” and “revenue.” The proposal “clarifies and expands” on who counts as TPI and who doesn’t. Beyond that, the rule change removes a spousal vetting requirement and outlines situations “under which licensees must continue to disclose funds that will be invested into a licensed marijuana business.” Hoffman added that the CR-102 also incorporated board interim policy 06-2018 on fund vetting for licensees which the Board adopted in December 2018. She concluded saying that the proposal incorporated the “amendments consistent with [HB] 1794” and “establishe[d] a new subsection of the rule to distinguish the requirements for financiers from that of true parties of interest.”
- Hoffman said that if she received approval from the Board, she’d file the CR-102 with OCR and anticipated the following timeline:
- July 15th: The CR-102 would be published by OCR.
- August 5th: The proposal would receive a public hearing; also the end of the written comment period.
- September 2nd: The Board would consider adopting a CR-103 with final rules.
- October 3rd: The rule’s effective date if the Board voted to adopt the CR-103.
- Having no questions, the Board voted to approve filing the CR-102.
- Policy and Rules Coordinator Casey Schaufler gave status updates on the agency’s other open and upcoming cannabis rulemaking projects.
- Schaufler’s last review was during the June 23rd Board Caucus.
- Cannabis Retail Title Certificates (WSR 18-09-117, audio - 2m). Schaufler started off by noting BIP 04-2018, adopted in April 2018, allowed licensees “who were prevented from opening due to a local prohibition” on cannabis retail to “apply for a title certificate that reduced license requirements” for as long as “that local prohibition was in place.” A CR-101 had been filed “in conjunction with the interim policy” but, after consultation with the Licensing division, Schaufler asserted the BIP was “sufficiently addressing the needs of licensees in local jurisdictions with retail cannabis sales prohibitions.” He said he was preparing a request “to withdraw the CR-101 related to title certificates allowing the interim policy to remain in place” ahead of a review of the policy in April 2021 to see “whether rulemaking will be necessary at that time.”
- SB 6206 Implementation (audio - 1m). Next, Schaufler brought up recently passed legislation mandating that the agency provide location compliance certificates during the application process which “allows the licensee to operate the business at the proposed location notwithstanding a later occurring otherwise disqualifying factor.” He anticipated introducing a CR-101 on the subject during the July 8th Board Meeting.
- HB 2826 Implementation (audio - 1m). Schaufler expected the legislation on cannabis products would necessitate another rulemaking process to begin on July 8th “which clarifies the authority of the LCB to regulate marijuana vapor products.” The recent law permits the agency to adopt “rules prohibiting any type of device used in conjunction with a marijuana vapor product as well as the use of any type of additive, solvent, ingredient, or compound in the production and processing of marijuana products” more generally provided the agency consults with the Washington State Department of Health (DOH) “or another authority the LCB deems appropriate” to determine a substance “may pose a risk to public health or youth access.” Schaufler said that WSLCB’s emergency rules banning vitamin E acetate from cannabis vapor products would remain in effect until September 24th, and he expected they’d be extended again until HB 2826 was implemented. In addition, he stated that Hoffman was collaborating with the Washington State Board of Health (SBOH) on their rulemaking to more permanently ban the compound.
- Incremental Expansion of Tier 1 Canopy (WSR 20-01-171, audio - <1m). Schaufler told the Board that public comments had come in ahead of the two listen and learn forums on the subject, one the day before on June 23rd, the other scheduled for June 30th. After the public engagement, he said the Board could expect a CR-102 with proposed changes at the July 22nd board meeting.
- Voluntary Compliance Program (VCP, WSR 19-15-074, audio - 1m). The project’s draft conceptual rules were under revision and Schaulfer raised the possibility of “an additional listen and learn session.” The rulemaking project’s first forum was on May 28th. “Barring significant change” to the draft rules, Schaufler would present a CR-102 to the Board on July 22nd.
- Quality Control (QC) Testing and Product Requirements (WSR 20-03-176, audio - 1m). The agency had received “five new public comments all in the form of a form letter sent to the CR-102 filing on May 27th.” Looking ahead to the July 8th public hearing, Schaulfer forecast a “significant amount of oral testimony at that hearing.”
- A cannabis license applicant criticized the agency, alleging that a bribery scheme between other applicants and agency staff had influenced WSLCB’s early licensing process.
- Sami Saad, a former medical cannabis grower and early dispensary owner at 12Green LLC, shared some of his background noting that he was a “Muslim guy.” He said he’d been pressured to withdraw a cannabis license application and pointedly told board members that they and other government officials cost him his business. He stated that although Board Member Ollie Garrett was “very nice” and had promised to help him, “when we came to closed door [meetings or] over the phone, it’s a shortcut” and WSLCB failed to follow through. Saad alleged that he knew “a lot of store owners from the past, some people getting shop, more than one shop and guess what? Some people from [WSLCB] collecting money from them. This is the mafia.” He asserted that he’d not received an equal chance to keep his cannabis business and continue to help his community (audio - 5m).