WSLCB - Executive Management Team
(May 12, 2021) - Odds and Ends

A mixed bag of topics included: a new CIO, hiring a DEI Manager, presentations for officials outside Washington, online licensing applications, and “pending” producer/processor licenses.

Here are some observations from the Wednesday May 12th Washington State Liquor and Cannabis Board (WSLCB) Executive Management Team (EMT) meeting.

My top 3 takeaways:

• Director Rick Garza touched on several topics in his update, including a new chief information officer promoted from within, collaboration with the Office of Equity, and a staff presentation to New Mexico officials.
  • Garza mentioned the new WSLCB Chief Information Officer (CIO), George Williams, who had been serving in the position on an interim basis. He said it was “great to have George join us as...our lead now in IT” upgrading his role from Senior Information Technology (IT) Manager. He indicated that Williams was a “25 year veteran of the Army” and one of the people hired by the agency under the YesVets program maintained by the Washington State Employment Security Division (ESD). “We’ve been fortunate to be able to be really active” with the program, Garza commented (audio - 1m).
    • WSLCB was recognized by ESD for their participation in YesVets. ESD Local Veterans Employment Representative Steven Severson gave a presentation to the board honoring their involvement with the program in 2019, a “thank you for hiring our nation’s heroes” (audio - 3m).
    • Former CIO Mary Mueller departed the agency at the end of March 2021 to join Gordon Thomas Honeywell Governmental Affairs as Director of Procurement to perform “Public sector market development and procurement consulting specializing in Washington State technology procurements.” From 2015 until her departure, she led implementation of technology projects at the agency and endured the transition of traceability vendor relationships from BioTrackTHC to MJ Freeway through an interim transition period where the agency itself was responsible for gathering data about transactions within the state cannabis marketplace. She helped co-lead the Traceability 2.0 work group and, in a parting gift just before leaving, achieved board approval on a road map towards ending the contractual relationship with MJ Freeway by June 2022.
  • “I also had the opportunity to meet Karen Johnson,” Garza said, “the new Equity Director of the office that the governor created through legislation last year.” He indicated that she’d begun working with WSLCB and other state agencies on a “five year strategic plan for DEI,” (diversity, equity, and inclusion). Johnson would be coordinating with Claris Nnanabu, WSLCB Director of Human Resources, to bring “all the parts of DEI into our agency,” he stated, adding that interviews would begin the following day for a dedicated DEI Manager at WSLCB (audio - 1m). 
    • Johnson had served on the DEI Council at the Washington State Office of Financial Management (OFM).
    • Johnson visited with members of the Washington State Commission on African American Affairs (CAAA) on March 19th.
  • Garza also talked about meeting with representatives from “one of the new adult-use states for cannabis,” New Mexico. He noted “five or six of our staff" provided an overview of the Washington approach and addressed some specifically requested topics “not unsimilar [sic] to what other states have had.” Garza acknowledged the leadership of Linda Trujillo, Superintendent of the New Mexico Licensing and Regulation Department which includes the Cannabis Control Division (audio - 1m).

• Director of Licensing Becky Smith briefed on the status of her division, mentioning online cannabis license applications and confusion caused by “pending” licenses.
  • Smith described work with the Washington State Department of Revenue Business Licensing Service after hearing “from our cannabis side...that we need to get some of our applications online and be able” to have them “not just in paper.” She said the process was underway headed by Customer Service and Support Manager Beth Lehman and Cannabis Licensing Manager Kevin Milovac. Smith described how “cannabis licensees will be able to do a change of location or an assumption, so somebody that wants to buy the business, electronically” (audio - 6m).
    • In December 2020 during public comment at a board meeting, Ammon Ford requested the licensing process be made “more efficient for everyone involved” with dedicated forms run through “electronic systems.”
  • Smith also spoke to 44 allegedly “unissued” producer/processor licenses, a topic raised during public comment on April 28th. She assured the board “that’s not the case” as the 44 licenses were “pending change of location and assumption applications.” Although marked as “pending,” Smith explained, “this is the type of application that generates...a new [Unified Business Identifier] UBI number in our system which makes it appear as a new application.” She stressed that “we have no outstanding new applications that have never been issued for producer/processor.”
    • Board Chair David Postman asked Smith about the ability to “flag that somehow in the system going forward so people know what that is?” Smith answered that her department was “working with IT” and communications staff “to see how that can be...flagged differently or shown differently,” indicating Williams would now be able to “help us do that” (audio - 2m).
    • Review the last 30 days of WSLCB licensing activity on the agency New License Applications, Approvals, and Discontinuances screen.

• Director of Communications Brian Smith gave an overview of his division's efforts, including helping field an inquiry from the U.S. Internal Revenue Service (IRS) on cannabis taxation in Washington state.
  • Smith was helping prepare a presentation for staff from the IRS that had reached out “to the [Washington State] Department of Revenue about a month ago,” whose officials subsequently “reached out to us” (audio - 7m).
    • Smith told the group that an IRS “regional office” in Colorado asked for a presentation on “what’s going on with the cannabis industry, particularly with regards to taxation, how that whole thing works.” He’d be part of a “joint presentation with Revenue” staff, along with Garza and WSLCB Chief Financial Officer Jim Morgan. Smith remarked the event was scheduled for June 7th.
    • While IRS representatives didn’t specify the reason for their interest, “I think that they just think that it’s time that they take a look at state systems, kind of, overall,” Smith posited. He’d known that agency officials “briefed them in the early days of setting up the system,” though he wasn’t involved at the time. Smith expected a “fairly large audience of people that are auditors and others.”
  • Postman wondered if the federal agency could “be looking ahead to possible national action on, you know, legalization or delisting” of cannabis from the federal schedules of controlled substances. Smith agreed it was a possibility.
    • Owing to its status as a Schedule I controlled substance, federal law prevents tax deductions related to operating a business which handles marijuana via §280E of the Internal Revenue Code.
      • A December 2014 memorandum from the IRS explained, “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.” The memo goes on to say §280E “even disallows a deduction for expenses that are not illegal per se (e.g., salaries; rent; telephone).”
      • MJBizDaily tracked the impacts of §280E in a special series on the subject which featured a primer on relevant terminology and hundreds of pages of documents:
        • IRS Compliance Initiative Project supporting documents
        • IRS Participant Guide for Marijuana Companies
        • Training presentations on marijuana companies and 280E
        • 280E and marijuana industry reference document for IRS agents
      • Take a look at an April 2015 white paper on the problems posed by §280E from the National Cannabis Industry Association (NCIA).
    • It is possible that IRS official interest has more to do with auditing than legalization as a March 2020 report, “The Growth of the Marijuana Industry Warrants Increased Tax Compliance Efforts and Additional Guidance” from the U.S. Treasury Inspector General for Tax Administration (TIGTA) foreshadowed increased interest by federal authorities in the taxation of cannabis companies.
    • The IRS was one of many federal agencies WSLCB partnered with during a federal enforcement action on April 7th at locations throughout Western Washington which board members discussed the following week. 

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