WSLCB - Executive Management Team
(August 28, 2019) - Summary

[ Event Details ]

Details on the WSLCB’s social equity and Tier 1 vertical integration bills; labs; traceability; the Cannabis Potency Tax Work Group; and legislator interest in advertising loopholes.

Here are some observations from the Thursday August 28th Washington State Liquor and Cannabis Board (WSLCB) Executive Management Team public meeting.

My top 3 takeaways:

  • Agency leadership moved from concepts to particulars in their review of next year’s social equity and medical/small producer agency request legislation (audio – 28m).
    • Director of Legislative Relations Chris Thompson’s last legislative update was at the July 24th Executive Management Team (EMT) meeting and the agency’s plans for the upcoming session were discussed at the July 17th Cannabis Advisory Council (CAC). Draft bill concepts were shared with a set of cannabis stakeholders while the Board discussed potential action during the August 27th Caucus.
    • Thompson began by sharing draft bill language from the Office of the Code Reviser on social equity and medical/small producers while stressing that the “actual language” for the request legislation was “still under construction.”
    • Thompson said the agency’s Cannabis 2.0 project (C2.0) was “a great framework to think about these efforts” given their compatible goals: “looking longer-term” and “expanding [WSLCB’s] partnerships [to build] a wider network and web of participants at the state level and otherwise with respect to overseeing and supporting the cannabis industry.” He claimed the potential bills could help the agency achieve both aims.
    • The draft bill to create a state-level social equity program prefaced with an intent stating, “Social equity considerations were not fully considered in licensing criteria for the newly created adult use marijuana industry. Subsequently concerns have been widely expressed about the absence of social equity in Washington’s marijuana industry.” Thompson explained the bill would try to “use a small number of additional retail licenses to build in an equity component to our cannabis program that wasn’t constructed from the beginning.”
      • Social equity in the cannabis marketplace had been frequently discussed by the agency and stakeholders, including during the May 1st EMT, July 17th CAC meeting, and July 9th Board Caucus.
      • If the measure were to pass the legislature and become law, there would be two sources for additional retail licenses: cities or counties newly empowered to request additional retail licenses for their jurisdiction, or “reissuance of a license that we at the agency have” by way of forfeiture, discontinuance, or initial stores that were never sited. Both sources would only offer a “small number” of additional stores.
      • To award those licenses, WSLCB “would look at achievement of social equity goals and reflection of social equity concerns in a plan that would be put forward by the applicant.” Evaluations would give “priority status” to applicants “from a community of color or who reflect veteran status or women” as those were “applicants of real interest.” Any group qualifying under the state’s definition of “protected class” in Washington’s human rights statute, Title 162 of the Washington Administrative Code (WAC), “could be eligible” but Thompson added they would consider business plans with “other ways in which [WSLCB] could work towards the goals of, and emphasize the values of the social equity concerns we have.” This could reflect a “community you might be serving” or a “background with respect to cannabis prohibition enforcement.”
      • Board Member Ollie Garrett suggested a need to guard against fraud by hidden owners trying to qualify for an equity license by having their spouse apply. Thompson agreed priority applications would need to be vetted and said WSLCB had “some exposure” with investigating “issues like this around [true party of interest (TPI)] questions.” Licensing Director Becky Smith confirmed her division “vets both” spouses and their financial involvement in license applications. “I don’t know that that would be different here,” she added.
      • Garrett also had a question about prioritization of applicants who were women. Thompson explained an applicant who “doesn’t have anything else to offer” in terms of social equity qualifications besides gender “probably wouldn’t rate very highly” compared with an applicant incorporating equity considerations into an “ownership structure, or location, or a business plan.”
      • The draft social equity bill also included a Technical Assistance Program which Thompson described as grants administered by the Department of Commerce (DOC) available to new licensees qualifying under the equity program to “help them get off the ground.” The bill draft specified “activities eligible for funding under the technical assistance competitive grant program include:
        • (a) Assistance navigating the marijuana retailer licensure process;
        • (b) Marijuana-business specific education and business plan development;
        • (c) Legal and regulatory compliance training;
        • (d) Financial management training and assistance in seeking micro loans;
        • (e) The purchase of equipment, software, or facilities; and
        • (f) Connecting applicants with established industry members and tribal marijuana enterprises and programs for mentoring and other forms of support approved by the liquor and cannabis board and city, town, and county authorities.”
      • Thompson said the program would be funded annually with $100,000 appropriated from the state’s dedicated marijuana account to WSLCB for interagency transfer to the DOC. He promised “more details yet to come.”
      • Board Member Russ Hauge wanted to know was $100,000 enough to help multiple grant recipients succeed, and asked if “small grant support” would be available to existing license holders. Thompson said he didn’t know if the proposed amount would be enough and that, as written, existing licensees could not qualify for grants.
      • Garrett asked if local governments would contribute towards the grant program. Thompson replied that in the circumstance where a local government requested additional retail locations, the draft bill required the local jurisdiction to “provide a matching grant equal to or greater than the total amount of funds awarded” to recipients of the new retail licenses. He added that some cannabis industry organizations had already offered to “provide assistance, mentorship, technical support” to foster the goals of the equity program. Director Rick Garza said the amount of money was similar to Prosper Portland’s equity program.
    • Regarding the draft bill for medical cannabis and smaller operators, Thompson began by explaining it represented WSLCB’s effort to answer “two issues of concern to the Board and the agency” in “one fell swoop.”
      • The draft bill’s intent made several declarations, including “[a]vailable evidence suggests that medical marijuana products, also known as department of health-compliant products, are not widely or readily available in the retail marketplace,” and that state laws “must ensure small-scale producers have a reasonable opportunity to remain in business and offer a diverse range of high-quality products for qualifying patients and other consumers. While sharp declines in marijuana prices have presented a challenge to many producers in the industry, small producers are especially impacted by low prices and the lack of opportunity to achieve economies of scale in their operations.” To address both of these concerns, the bill would “provide expanded access to medical marijuana while simultaneously creating new avenues for small scale marijuana producers to make their businesses more sustainable.”
      • Thompson stated there would be “an exception to the tied-house structure for Tier 1 producers to sell at retail provided it is medical product.” He described three potential paths:
        • Home delivery to patients or their caregivers
        • Retail sales from the producer’s licensed location
        • Shared retail space “in a location that could operate up to two times a month where producers would come together”
      • On-site direct sales would be restricted to locations at least three miles from the nearest retail store, require the presence of a medical consultant, and require local government approval.
      • The “farmers market” option for shared retail spaces would also require the presence of a medical consultant and include shared culpability: “if a violation were to occur and we could not determine a particular licensee was responsible then they’re collectively all responsible or subject to enforcement action.”
      • Garrett asked if language clearly limited producers to only selling their own medically compliant products. Thompson replied “we haven’t specifically addressed that” while agreeing it was a fair point.
      • Hauge anticipated the agency could get some pushback by only offering privileges to Tier 1 producers, a motivation for his on-going efforts to define smaller producers. He believed other criteria like number of harvests would be suggested. Thompson said they’d be open to hearing proposals, and suggested that concern was part of the justification for including a distance requirement to avoid direct competition with existing retail stores.
    • Garza explained that he’d given a recent interview where he spoke about Board Chair Jane Rushford’s work on C2.0 and the agency’s collaborative approach, but also mentioned the “many obstacles” in establishing a “functional” program to help patients and Tier 1 licensees. With zoning restrictions, the expectation for local governments to ‘opt-in’ to allow expanded growing privileges, and sales limited to patients, Garza anticipated the proposal would “not create too much disruption” for current retailers. He said it was modeled on the “old concept” for wineries, and called it a “cautious” start which would hopefully lower the cost of medically compliant products. Garrett was appreciative but requested discussions with the Board and staff before the agency talked to the press on prominent projects. Garza was understanding, but referenced recent discussions on the issue and stressed that “this is just the beginning of the process; Board will now get input from stakeholders, and at the end of the day you’ll determine how comfortable you are to move it forward.” Thompson agreed there was still time to tweak the draft before the September 13th deadline to submit agency request legislation packages to the governor’s office.
  • Cannabis Examiner Manager Kendra Hodgson provided her quarterly testing laboratory update and described the agency’s role in the new Cannabis Science Task Force (audio – 12m).
    • Hodgson’s last quarterly lab update was during the May 15th EMT.
    • Lab-related issues have been a prominent topic lately, with meetings across agencies dealing with or devoted to the state’s system of testing cannabis products:
    • As of the end of August, Hodgson stated there were 13 labs accredited to test cannabis.
      • Two labs, Steep Hill and Anatek, were expected to close in the near future.
      • Another, Dragon Analytical Labs, had been re-accredited.
      • Four labs were accredited for pesticide testing:
        • Confidence Analytics
        • Medicine Creek Analytics
        • Praxis Laboratories
        • Testing Technologies
      • While two were accredited for heavy metals testing:
        • Dragon Analytical
        • Medicine Creek Analytics
    • Hodgson reported underwhelming participation at the listen and learn sessions on lab licensure in both Spokane and Olympia. She said they only heard two public comments, both against requiring licensure. However, Hodgson felt that reflected “partly timing, and partly the topic” saying there were lots of issues at play drawing stakeholder attention. She suggested “we may revisit [lab licensure] down the road” in two years as the transfer of authority for lab accreditation progressed towards the Department of Ecology (DOE).
    • Hodgson also reported on her experience as the WSLCB’s designee and voting member on the Steering Committee of the DOE’s Cannabis Science Task Force (CSTF). Newly hired WSLCB Marijuana Chemist Nick Poolman—who formerly worked at Capitol Analysis as well as the Washington State Department of Agriculture (WSDA) lab responsible for analyzing WSLCB cannabis samples—was assigned to represent the agency in the CSTF’s work groups. The scope of the task force was constrained to accreditation methods and best practices for “how those products are tested.” Work groups would meet roughly every two weeks until December to begin forming recommendations for an initial report due to the legislature in June 2020.
    • Hauge wanted to know about the CSTF’s agenda and how it would change in the coming years. Hodgson called the legislation establishing the CSTF “very specific” saying it would look at testing for pesticides and how labs are accredited in their first report. A second report would address heavy metals testing, potency, and “other things that may be relevant.” Nothing would change for WSLCB lab accreditation in the short term.
    • Thompson asked about the CSTF’s membership beyond DOE, WSLCB, and other participating state agencies. Hodgson said DOE allowed “interested stakeholders” to “self-refer” themselves for membership after which agency staff on the CSTF evaluated their background and expertise. Medicine Creek Analytics, Confidence Analytics, and Capitol Analysis representatives were assigned membership on the Steering Committee, while several other labs—but not all—were recruited for work groups. In response to Thompson’s inquiry about a recommendation from the Puyallup Tribe of Indians, Hodgson confirmed Amber Wise from Medicine Creek Analytics had been appointed to the CSTF.
  • A mix of issues were brought to the fore by staff including traceability, the Potency Tax Work Group, and advertising loopholes.
    • Traceability (audio – 4m)
      • Deputy Director Megan Duffy offered an update on MJ Freeway’s Leaf Data Systems, generator of consistent criticism following a troubled July update which required the adoption of a board interim policy to allow licensees to implement unapproved workarounds.
      • Duffy reminded the group that MJ Freeway’s 1.37.5 release “posed significant challenges” and staff “continued to work on stabilizing” the shakey seed-to-sale software. Duffy said, “under the auspices of Cannabis 2.0” WSLCB was questioning “what should we do differently”; she noted “a component of that is traceability.” Duffy promised more “conversations with our stakeholders” to share “here’s where we think we might head under [C]2.0,” before settling on a “final approach.” Hauge asked if there was a timeline for that work; Duffy responded that staff had hosted three internal meetings so far, with another scheduled for the following week. She expected that the next meeting would enable her to “pull together an external work group” by fall or winter.
    • Cannabis Potency Tax Work Group (audio – 6m)
      • Thompson’s last briefing on the potency tax study work group was at the August 7th EMT. The work group’s first meeting was on August 22nd.
      • Thompson said the agency issued a request for proposals (RFP) for research support for the work group which elicited two submissions. BOTEC Analysis was awarded the contract and would produce a report that would “examine such questions as, is this feasible? What would be the advantages and disadvantages of a system basing taxation on potency? What are the implications for various segments of the industry?” The report would include analysis of potential disproportionate impacts including consideration of medical cannabis products, a timeline for implementation, and projected costs for taxation systems based on so-called product potency. BOTEC had submitted a “project and a staffing plan” to Thompson, and the firm planned to interview stakeholders in the state.
      • BOTEC’s work was intended to complement the work group’s efforts, whose first meeting the week prior saw “good turnout” and a “groundwork laid” for three more meetings. Thompson admitted he was “a little surprised” to see how much interest there was in the topic. The work group’s report is due to the legislature by December 1st, and must be approved by the governor’s office prior to that. Hauge asked for the work group meetings to be added to his calendar so he could attend “at least a couple of times.”
  • Advertising Loopholes (audio – 2m)
    • Enforcement Chief Justin Nordhorn described recent movement on cannabis advertising rules. Matt McCallum, WSLCB’s Marijuana Advertising Coordinator, had engaged Nordhorn in several discussions on the issue. The two men planned to arrange a presentation on cannabis advertising for legislators that were “expressing some concerns around the loopholes and how they’re being applied.” Nordhorn added that he and McCallum would “put some ideas together” for the lawmakers and loop in Thompson to assist with any bill that emerged from the effort. He hoped to address “a lot of grey areas."

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