Washington State Legislature - Cannabis Bill Activity
(March 18-21, 2019) - Summary

The speedier second half of the legislative session began in earnest this week, with public hearings on cannabis intellectual property, labs, WSLCB reform, and labeling.

Here are some observations from several Washington State Legislature committee public meetings during the week of March 18-21, 2019 – and a glimpse of the week ahead.

My top 5 takeaways:

The Senate Labor and Commerce Committee hosted a public hearing on HB 1794 – “Concerning agreements between licensed marijuana businesses and other people and businesses, including royalty and licensing agreements relating to the use of intellectual property.” 

  • Details on HB 1794's House policy committee public hearing and executive session. Engrossed Substitute HB 1794 (ESHB 1794) was passed by the full House on March 7th with one amendment.
  • Richard Rogers, Senior Counsel to the Committee, briefed senators on ESHB 1794’s effects (audio – 1m, video). From the Senate Bill Report:
    • Updates terminology regarding authorized agreements that licensed marijuana businesses may enter with other parties related to goods or services with trademark or other intellectual property protections.
    • Specifies the authorization encompasses, among other agreements, agreements related to goods or services registered as a trademark under another state’s law or international trademark law.
    • Lists specific types of contract provisions that may be included in an agreement, such as (1) royalty fees subject to certain limits; (2) terms giving either party exclusivity to the use of intellectual property; and (3) quality control standards to protect the integrity of the intellectual property.
    • Exempts non-licensed parties to authorized intellectual property agreements from qualifying for a marijuana license for purposes of the agreement.
    • Provides that authorized intellectual property agreements are subject to recordkeeping requirements established under the Liquor and Cannabis Board’s rules.
  • Rogers cited WSLCB’s fiscal impact as $46,000 and noted the bill would take effect within 90 days of being passed into law.
  • Chris Marr, representing producer/processor Grow Op Farms (Phat Panda), said the legislature passed legislation in 2017 on the issue, but years later the state had “no promulgated rules in place.” He argued there was a constructive dialogue occurring but draft proposals so far were inadequate. He summarized, “Basically, HB 1794 aligns [intellectual property (IP)] laws effecting cannabis licensees with those in other industries and also other states that license cannabis intellectual property” (audio – 2m, video).
  • Chris Masse, a Partner with the firm Miller Nash Graham & Dunn, supported the bill on behalf of clients and told members “being a little bit more prescriptive in the bill is both necessary and kind of helpful to the LCB” by outlining limits and expectations. She compared it to Coca-Cola not being able to monitor its recipe or build a brand and concluded “this is a way, especially for small business, to do that” (audio – 2m, video).
  • Andy Brassington, CFO of Evergreen Herbal, testified that he had a lot of business expertise giving him experience “with the challenges of owning and operating, leading and growing small businesses.” He said ESHB 1794 was a “sensible” small-business bill allowing the industry access to knowledge and processes needed to “compete, both in the state, and in the nation” (audio – 2m, video).
  • Tammi Hill, Counsel with Cannex Capital Holdings, explained she had previous IP expertise. She said the legislation was important to pass because of IP’s overall importance as an “intangible asset” to the U.S. economy and the value IP had in “how companies share technology and reputation with each other” (audio – 2m, video).
  • Vicki Christophersen, representing the Washington CannaBusiness Association (WACA), began by apologizing for being “back before you with this issue.” She said the testimony they were hearing was “exactly the same testimony we were hearing in 2017. So we’re really not asking you to do anything broader” than previous efforts (audio – 1m, video).
  • Chris Thompson, Director of Legislative Relations for WSLCB, supported the bill and mentioned the agency’s gratitude that industry stakeholders had worked with them and addressed concerns with the original version of the bill (audio – 1m, video).
  • Committee Chair Karen Keiser closed the hearing noting six people signed in but did not wish to testify: five in support, one opposing.

The Senate Labor and Commerce Committee hosted a public hearing on HB 2052 – “Clarifying marijuana product testing by revising provisions concerning marijuana testing laboratory accreditation and establishing a cannabis science task force”

  • Details on HB 2052's House policy committee public hearing and executive session, and the House fiscal committee public hearing and executive session. HB 2052 was passed by the full House on March 6th without amendments.
  • Richard Rogers briefed senators on the bill’s proposed effects (audio – 1m, video). From the Senate Bill Report:
    • Transfers authority and responsibility for marijuana product testing laboratory accreditation requirements to the Department of Ecology (DOE), from the Washington State Liquor and Cannabis Board, effective July 1, 2022.
    • Requires DOE to determine, assess, and collect an annual fee to cover the direct and indirect costs of implementing the marijuana product testing laboratory accreditation program, subject to requirements.
    • Establishes the Cannabis Science Task Force (task force) to collaborate on the development of appropriate laboratory quality standards and to establish a work group on proficiency testing and another work group on laboratory quality standards.
    • Requires the task force to submit a report to the Legislature by December 2020, with findings and recommendations for laboratory quality standards for cannabis testing laboratories.
  • Carol Smith, Environmental Assessment Program Manager with the Department of Ecology (DOE), testified that her department was “in support of transitioning lab accreditation responsibilities” to DOE, but against the bill primarily due to its swift timeline. Citing “significant gaps in the existing lab accreditation system for cannabis” she predicted filling those gaps would take longer than the bill allotted. She praised the bill’s proposed task force, but cautioned that without her department’s suggested changes the state could potentially “cut corners on addressing these gaps” and “put the health and safety of consumers at risk” (audio – 1m, video).
  • Al Ralston, lobbying on behalf of the Cannabis Alliance, commended the legislation and said his group had helped develop it out of concern for “public safety” (audio – 1m, video).
  • Kyle Capizzi, co-chair of the Cannabis Alliance’s Science and Standards committee, said the group determined “changing standards for the labs was one area of risk.” He argued DOE control over accreditation and a stakeholder task force were important improvements (audio – 1m, video).
  • Nick Mosely, a Cannabis Alliance Board Member, spoke to the need for a “vital, ethical, and sustainable” cannabis industry, and that HB 2052 protects the industry from a “public health” and “judicial” standpoint. He called it a rational “revamping” of the program that balanced “expediency with thoroughness and thoughtfulness” (audio – 1m, video).
  • Jedidiah Haney, Executive Director of the Laboratory Guild, said he represented five accredited labs on the issue. Haney stated, “This bill passed the house with almost unanimous support, we have been working with [DOE and WSLCB] on this timeline discussion.” He added that longer timelines extended the costs, which he feared would get pushed onto labs and producers or processors (audio – 1m, video).
  • Jeff Doughty, Laboratory Guild president and CEO of Capitol Analysis, said the bill mattered because “honest businesses are currently suffering.” He said they’d support the bill even with a longer timeline, but were eager to work with agencies without cutting corners despite concerns about “implementation costs” (audio – 1m, video).
  • Chris Thompson said WSLCB supported both the bill and DOE’s request for a longer timeline (audio – 1m, video).
  • Seth Dawson, representing the Washington Association for Substance Abuse and Violence Prevention (WASAVP), said he supported the bill because it got WSLCB “out of the labs and into the field” (audio – 1m, video).
  • Chair Keiser noted that three people signed in to support the bill without testifying.

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 had 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.

The House Commerce and Gaming Committee hosted a public hearing on SB 5298 – “Regarding labeling of marijuana products”

  • Details on SB 5298's Senate policy committee public hearing and executive session, and a Senate floor activity and amendment update. Engrossed Substitute SB 5298 (ESSB 5298) was passed by the full Senate on March 11th with two amendments.
  • For additional context, see the WSLCB Board interim policies signed in early January regarding cannabis labeling.
  • Kyle Raymond, Research Analyst for the committee, described ESSB 5298’s proposed effects (audio – 2m, video). From the House Bill Analysis:
    • Allows marijuana products identified as Department of Health compliant to include additional information on labels that provide the product’s intended role in maintaining a bodily structure or function.
    • Prohibits marijuana product label information from: containing claims that marijuana products diagnose, mitigate, treat, cure, or prevent any disease; including false or misleading statements; or being especially appealing to children.
    • Allows a marijuana product label to contain directions or recommended conditions of use, describe the product’s psychoactive effect, or make a legal claim related to the nonmarijuana ingredients.
    • Provides the state and its agencies with immunity from civil liability for a licensee’s descriptions on the labels.
    • Raymond also noted the bill won’t be effective until January 1st, 2020.
  • Senator Ann Rivers explained the bill emerged from concerns raised by “foremost companies for cannabis wellness” and would enable people to “know what they’re putting into their bodies and how it can affect them” (audio – 1m, video).
  • Brooke Davies spoke on behalf of WACA, saying they supported the bill in its current form (audio – 2m, video).
  • Chris Masse said the bill tried to replicate the way the Food and Drug Administration (FDA) regulated supplements by distinguishing “health claims from structural and functional claims.” She explained only Department of Health (DOH) medically compliant products would be permitted to include structural or functional claims (audio – 1m, video).
  • Wendy Hull, owner of Fairwinds, said they were a DOH-compliant company and product intent had always been expressed through its product names. However, recent Board interim policies had hindered “the ability to even say words such as ‘sleep’” creating a public safety concern about whether consumers could accurately identify a product’s purpose. Hull said Fairwinds had been manufacturing cannabis products since 2015 and never been accused of making false claims on its labels (audio – 2m, video).
  • Mindon Win, representing edibles processor Botanica Seattle, supported the bill to enable his business to explain what people are putting in their bodies: “This is a cannabis product. It’s going to have an effect on your mind or body.” He said this was especially important because the medical and recreational markets had been “fused” (audio – 1m, video).
    • Vice Chair Kristine Reeves asked if it was common for the enforcement arm of an agency to regulate product labeling. Masse said it did happen at the federal level, but even there enforcement was rarely able to unilaterally pull a business license (audio – 1m, video).
  • Dawson spoke for WASAVP on ESSB 5298, and said he opposed the “underlying bill” but supported the amended language as written. His goal was to support further changes if they came from DOH (audio – 2m, video).
    • Reeves asked Dawson why enforcement should have authority over product labeling. He answered that he liked the DOH’s involvement in the process and that WSLCB’s role would shift towards “other enforcement aspects” and didn’t anticipate WSLCB would override DOH’s decisions (audio – 1m, video).
  • ESSB 5298 is scheduled for executive session in the Commerce and Gaming Committee on March 26th at 3:30 PM.

HB 1430 (WSLCB’s systems modernization project account) was heard by the Senate Ways and Means Committee.

  • HB 1430, agency request legislation on the Washington State Liquor and Cannabis Board (WSLCB)’s licensing and enforcement systems modernization project (SMP) account received a public hearing in the Senate Ways and Means Committee on Monday March 19th.
  • Additionally, SB 5234 (patient excise tax) was designated necessary to implement budget (NTIB), and we’ll see more cannabis bill public hearings and executive sessions next week.
    • SB 5234, “Modifying the excise tax for medical marijuana patients with recognition cards for products identified as beneficial for medical use,” has been designated NTIB and may see further activity.
      • WSLCB Board Chair Jane Rushford said she liked SB 5234 when it was mentioned in a Board Caucus at the end of February.
    • In addition to the executive sessions described above, other cannabis bills were scheduled for legislative activity next week:
      • SB 5605 (vacating misdemeanor possession convictions) was scheduled for a public hearing in the House Public Safety Committee on Monday March 25th at 1:30 PM.
      • SB 5276 (hemp) was scheduled for a public hearing in the Commerce and Gaming Committee on Monday March 25th at 1:30 PM and executive session on Tuesday March 26th at 3:30 PM.
      • HB 1792 (budtender penalties) has been referred without recommendation by the Senate Labor and Commerce Committee to the Law and Justice Committee.
      • HB 1095 (administering cannabis to student-patients) has been scheduled for a public hearing in the Senate Early Learning and K-12 Education Committee on Wednesday March 27th at 1:30 PM.