WSLCB – Board Caucus
(August 13, 2019)

Here are some observations from the Tuesday August 13th Washington State Liquor and Cannabis Board (WSLCB) Board Caucus.

My top 3 takeaways, plus a bonus takeaway at the end:

  • The Board reviewed stakeholder workgroup meetings, signaling WSLCB’s intentions for multiple rulemaking projects (audio – 13m).
    • WSLCB Policy and Rules Coordinator Kathy Hoffman’s last rulemaking update was presented at the August 7th Board Meeting.
    • On Monday August 12th, Board Member Russ Hauge attended a stakeholder meeting on the True Party of Interest rulemaking project (TPI, WSR 18-22-054). His assessment was that stakeholders were “working in a good way to get some solid solutions in the rules.”
      • In looking at the difference between “financiers” and TPI, Chris Masse, a partner at Miller Nash Graham and Dunn LLP, offered “commercially reasonable loan agreements” which “give a potential lender some security” through a role in any potential liquidation of the business, a practice Hauge termed “pretty standard.” However, Masse reported “inconsistent response” from WSLCB when she asked what was permitted in financial agreements.
      • Hauge encouraged a clearer “decision-making tree” for the agency as the Board had encountered situations at odds with “where we wanted to go with something.” He hypothetically wondered: “what happens if I was a license holder and I wanted to borrow some money and I hired a lawyer to put together a security agreement and who’s going to review that? What are the criteria they’re going to be using to evaluate that? And what can I count on as to the quality of the decision? And what I’m hearing now is that ‘we can’t really count on that.’”
      • Board Member Ollie Garrett said the environment for cannabis policymaking had “evolved” since the agency first became responsible for regulation, and there were fewer concerns about hidden ownership. Hauge concurred that decision-making criteria on financial agreements needed scrutiny to determine whether WSLCB was “commercially reasonable, or are we being a little bit too heavy-handed?”
      • Hauge mentioned situations where the Enforcement division of the agency reviewed state or federal statutes to arrive at quasi-legal opinions for Enforcement decisions. He felt this created costs for the agency, such as the lawsuit filed by Seattle HEMPFEST over advertising and free speech concerns.
      • Hauge hinted at “hints” that the 2020 legislative session would feature more changes the industry wanted, though he preferred stakeholders approach WSLCB directly to request changes instead of exercising legislative authority to alter the agency. Out-of-state investment was one such change Hauge had heard was being considered again after two bills on the subject failed in 2019.
      • Garrett asked about bringing financial agreements to the Board or Executive Management Team (EMT) for vetting. Rushford suggested a cross-division “Business Benefit Team” for weighing agency policy decisions through a business lens.
    • Hauge and Garza had just attended a stakeholder meeting on the Cannabis Penalties rulemaking project (WSR 18-22-099) before the caucus. Hauge expected a new draft with “some substantial rewrites of the monetary penalties and how they might be figured and where they’re going to start from.”
    • Garza brought up a “really good meeting” with stakeholders the day before on the Packaging and Labeling rulemaking project (PAL, WSR 19-12-029) where agency staff learned more from Colorado and Oregon regulators about those jurisdiction’s PAL rules. There was general agreement that Oregon had a better program.
      • Stakeholders included licensed processors from the state’s major cannabis trade organizations. Washington CannaBusiness Association (WACA) member Rachel Weygandt was invited to participate after her testimony at the August 7th Board Meeting. And it’s our understanding that Katie Mitchell of Katie Baked Goods, a Cannabis Observer sponsor, planned to participate on behalf of The Cannabis Alliance.
      • Garza said that open rules and board interim policies (BIP) need to align with Policy and Rules Coordinator Kathy Hoffman’s efforts to produce draft rules on PAL by the end of September.
    • On Thursday August 22nd, the agency planned to host a second listen and learn forum for the Quality Assurance (QA) Testing and Product Requirements rulemaking project. On Tuesday August 13th, the agency sent an announcement which included draft conceptual rules and a guidance document to help stakeholders prepare for the listen and learn forum format.
  • The Board considered how to integrate an economist into agency policymaking (audio – 4m).
    • Hauge mentioned the idea of hiring an economist to focus on the state’s cannabis market during an August 6th discussion on outdoor growers. The agency’s need for economic subject matter expertise was also felt in relation to the legislatively mandated study on cannabis taxation by potency.
    • Hauge again broached the topic of “beefing up our research section with an economist” to better comprehend the unique market.
    • Rushford argued the state “had that talent in town” and the agency could consider a part-time position or temporary staff transfer from another agency such as the Department of Commerce (DOC) or Office of Financial Management (OFM). Garrett and Garza agreed there may be interested employees in other state institutions. 
    • Rushford also suggested an “extensive fellowship” could be offered to a University of Washington (UW) graduate student with an emphasis on WSLCB’s needs, or staff from the Washington State Institute for Public Policy (WSIPP), though Hauge noted the latter was “goal directed” and may need legislative authorization before undertaking research.
      • WSIPP’s website indicated their mission is “to carry out practical, non-partisan research at the direction of the legislature or the Board of Directors.”
    • Director Rick Garza recommended starting with WSLCB Chief Financial Officer (CFO) Jim Morgan who might be able to help identify existing staff with economic expertise to look at the cannabis industry.
  • The Board and agency staff talked about a plethora of meetings and upcoming events.
    • Garza discussed his recent visit with the Tulalip Cannabis Agency (TCA, audio – 12m). 
      • Unique among tribal nations having signed cannabis compacts with Washington state, the Tulalip Tribes developed an independent cannabis regulatory agency. Other nations typically leveraged an existing tribal business or enterprise entity.
      • Garza met with Tulalip Cannabis Agency Director Lena Hammons to review enforcement practices like compliance checks at tribal retail cannabis locations. WSLCB Tribal Liaison Brett Cain, Enforcement Chief Justin Nordhorn, and Enforcement Captain Tom Dixon also participated.
      • Garza proposed a quarterly phone call to continue collaboration.
    • As part of outreach for the Cannabis 2.0 Project (C2.0), Rushford and Garza reported meeting with Washington State Patrol (WSP) Chief John Batiste the week before.
      • Rushford called the meeting “worthwhile” as it “re-establishes that partnership.”
      • Garza noted Batiste’s interest in having WSLCB join the Washington Traffic Safety Commission (WTSC) and said Public Health Education Liaison Sara Cooley Broschart would coordinate the effort.
    • Hauge said he planned to go to a “meet and greet” with the Hoh Tribe the following morning, Wednesday August 14th.
    • Rushford asked about agency participation in the approaching National Conference of State Liquor Administrators (NCSLA) Central/Western Regional Conference in Portland (audio – 10m).
      • Scheduled for September 8th through 10th, the conference for alcohol regulators would include a session on cannabis regulation where Garza would speak alongside counterparts from other states. A separate session on hemp and cannabidiol (CBD) was also planned.
      • Garza, Rushford, Licensing Director Becky Smith, and Liquor Supervisors Marcy Wilsie and Jon Engelman were scheduled to attend.
    • Rushford mentioned a medical cannabis roundtable would be hosted in Springfield, Illinois in October. While details weren’t available, Rushford said she and Hoffman had an interest in participating.
    • Rushford and Broschart were looking ahead to the Washington State Prevention Summit in Yakima on November 5th and 6th where they planned to speak to advocates about engaging in the agency’s rulemaking process.

Finally, a bonus takeaway:

  • Director Rick Garza on traceability (audio – 1m).
    • Hauge asked, “Can I ask about traceability, anything exciting happening?”
    • Garza replied, “I don’t think anything more than what you had seen from [Deputy Director] Megan [Duffy], that we extended the contract by two months and continue to work on issues of functionality with respect to the system. But I think as we negotiate with the vendor [MJ Freeway] where we go from here only to say we keep all our options open there. But I know Megan will share more soon.”
    • Hauge pressed, “Well my understanding is that we have told the vendor: ‘you will make this version work.’
    • Garza agreed, “Right, instead of looking for new releases, it’s—to your point—it’s kind of like ‘Let’s just put our effort toward this release and making it functional’ and don’t get us where we’ve been going in the past where we think we fix something that we’re already looking to a new release which only magnifies the problems that are out there. So I think, to your point, that’s where Megan and [Chief Information Officer] Mary [Mueller] and the team is going right now. Let’s get this thing functional and then I’ll have Megan update you all when we get closer to where we’re going.”

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