WSLCB - Board Meeting
(October 16, 2019) - Summary

The Board adopted an initial set of emergency rules in response to the state’s prohibition of flavored vaporizable products and heard testimony to the economic impacts caused.

Here are some observations from the Wednesday October 16th Washington State Liquor and Cannabis Board (WSLCB) Board Meeting.

My top 3 takeaways:

• The Board extended the timeline for the vapor products rulemaking project and adopted two emergency rules in response to the Governor’s prohibition of “flavored vapor products.”
  • Cannabis Policy and Rules Coordinator Kathy Hoffman prepared the Board for rulemaking activity at caucus the day before. The moves were the agency’s formal response to Governor Jay Inslee’s executive order on vapor product regulation signed on September 27th which addressed widespread concerns that unidentified vaporizable products were causing severe lung illnesses while at the same time attempting to curb youth vaping. The State Board of Health (SBOH) adopted emergency rules in response to the order at an October 9th meeting.
  • Vapor Products (audio - 3m, video). The Board extended the vapor products rulemaking project timeline adopted at the October 2nd Board Meeting. Hoffman reintroduced the CR-102 saying staff “realized after reviewing the CR-102 form that we need to reschedule the hearing date to a later date in November.” The rulemaking would modify WAC 314-35 to implement HB 1874 on nicotine vapor product taxation and HB 1074, the “Tobacco 21” bill increasing the minimum age for purchase of tobacco and nicotine vapor products. The new timeline extends the public comment period and moves the public hearing from November 13th to November 26th. Hoffman told the Board, “I would come back before you on December 11th and ask you to adopt final rules.” She acknowledged a “possibility that we could file [the rule’s CR-103] on [December] 18th as well if we receive significant comment and need to respond.” The Board voted to adopt the revised CR-102.
  • Next, the Board approved two emergency rules pertaining to the executive order on vaping. Hoffman said it was consistent with the Board’s emergency rulemaking powers in the Administrative Procedures Act, specifically RCW 34.05.350(1)(a) regarding changes “necessary for the preservation of the public health, safety, or general welfare.” Emergency rules would stay in effect for “120 days after filing” with the Office of the Code Reviser, though they could be suspended earlier or extended beyond 120 days depending on the actions of the Board.
    • Vapor Product Signage (audio - 3m, video). One part of the governor’s order “requires [WS]LCB to require the posting of warning signs regarding the health risks of vaping” at licensed retailers (October 11th version, en español). The rule “adds a section to WAC 314-55-086 with respect to mandatory signage.” The Board approved the rule, and Hoffman expected it to “become effective tomorrow.”
    • Vapor Product Disclosure (audio - 2m, video). The second emergency rule was around “mandatory disclosure of all compounds used in the production and processing of marijuana vapor products for inhalation.” Another requirement of the executive order, the agency would direct processors to “disclose all compounds, including ingredients, solvents, additives, et cetera, used in the production and processing, as well as the source of those vapor products.” The rule would create a new section, WAC 314-55-1055, to require disclosure “on a form that we’ve developed in collaboration with our industry partners.” Hoffman said that the original version of the rule only had processors storing the form “in their premises” but had been changed at the Board’s request to include submission of the forms to WSLCB “either in electronic form or through mail” until an online form was available. The Board approved the emergency rule.
  • Later that day, WSLCB sent out notice of the emergency rules and the Washington State Department of Health (DOH) reported five more cases of vaping associated lung injury in King County. At publication time, Washington state had identified 12 cases of the mysterious affliction. As of October 8th, the U.S. Centers for Disease Control (CDC) had documented 1299 confirmed cases and 26 deaths throughout the United States.

• Cannabis Policy and Rules Coordinator Kathy Hoffman also provided an update on rulemaking projects beyond vaporizable products, including revised timelines and a glimpse of “rule hygiene” on the horizon.
  • Cannabis Penalties (WSR 18-22-099). Hoffman updated the Board on the revision of penalties, telling them the “next listen and learn session is scheduled for October 31st” and would seek feedback on “penalty grids.” The first listen and learn forum occurred on September 26th. Assuming “everything goes as planned,” she anticipated a CR-102 with proposed rules would be ready “either November 26th or December 11th” (audio - 1m, video).
  • Voluntary Compliance Program (WSR 19-15-074). A component of SB 5318, creation of the compliance program was “opened in July” and the agency planned to host its first internal work group meeting on Friday. Hoffman said the meeting would lead to a “collaborative schedule for program development in consultation with marijuana licensees and their employees.” Hoffman expected to bring a CR-102 to the Board in “mid-spring of 2020” (audio - 1m, video).
  • True Party of Interest (TPI, WSR 18-22-054). Hoffman stated that staff was progressing the rule set “to the extent possible,” with the next external work group meeting with “industry partners” scheduled for October 22nd. She cautioned the Board that they wouldn’t be able to move TPI rules forward in conjunction with Cannabis Penalties, even though “they’ll still inform one another.” Hoffman predicted the CR-102 would be proposed early in the following year (audio - 1m, video).
  • Quality Assurance (QA) Testing and Product Requirements (WSR 18-17-041). Hoffman said the agency continued to envision an “18 month staggered approach” where retailers would have more time to sell off inventory approved under the old rules. She told the Board new changes reflected the recent executive order on vaping and aligned with Packaging and Labeling (PAL) rulemaking. She forecast the CR-102 would be “ready to go by mid-November.” The agency hosted a QA listen and learn session on August 22nd (audio - 1m, video).
  • PAL (WSR 19-12-029). Hoffman termed an October 11th listen and learn forum “excellent” saying it “brought together our industry partners, licensed community, our prevention community” and led to a “few substantive changes to the draft conceptual rules.” Final comments had to be submitted by Friday October 18th, at which point Hoffman would meet with staff to “finalize our proposal.” From there she’d present the CR-102 to the Board on October 30th, hold a public hearing on December 11th, and then see “finalization” at the beginning of 2020 (audio - 1m, video).

• Future Rulemaking (audio - 1m, video).
  • Cannabis Production and Canopy (WSR 18-01-058). Hoffman said a “Tier 1 expansion” was “on the horizon.” At Board Caucus the day before, Hoffman reiterated this long-inactive rulemaking project would be withdrawn and restarted.
  • As other rule projects concluded, Hoffman announced her intent to “revisit advertising rules and then just other rule hygiene around concerns with our licensing division.”

• During general public comment, the lack of racial inclusiveness in the state’s cannabis marketplace and the substantial impacts of new vapor product regulations were key concerns raised.
  • Aaron Barfield, Black Excellence in Cannabis (BEC, audio - 3m, video). Following his last testimony to the Board on October 2nd, Barfield said he was given "self-identified race charts" from the agency showing 4% of retail stores were owned by African Americans.
    • He found WSLCB’s data dubious as it indicated 17 “black-owned stores” while he’d found “maybe three stores in the entire state that are actually owned and operated by African Americans.” Barfield found the possibility that “less than 1%” of retailers were African American to be “embarrassing for the state.” Rather than a model for diversity, he suggested the state was leading “with greed and discrimination.”
    • Barfield said his organization was “launching a petition and, if we have to, picketing outside the retail stores but we’re going to do what we need to do to get the governor’s attention and make sure that things are fixed.”
    • Barfield’s comments prompted Board Member Ollie Garrett to ask Licensing staff to clarify when licensee demographic data had been collected. 
      • The Office of Financial Management (OFM) census estimates for 2019 found that just over 4% of the state’s population identified as “black.”
  • Brooke Davies, Washington CannaBusiness Association (WACA) Deputy Director (audio - 4m, video). Davies called attention to the agency’s October 11th announcement of required action on flavored vapor products. She claimed guidance to licensees permitting “only products with cannabis-derived terpenes” meant "the majority of the products in the market now need to come off the shelf." Davies shared concerns about “actually getting these products off the market.”
    • In WACA’s “constant communication” with agency staff, they’d found the “normal return rules apply which means the agency can’t force a processor to take product back and the agency can’t also force a processor to reimburse the retailer.” Davies noted that “the agency has also said that a vendor may not issue a retailer credit for any returned product.” Davies believed that WAC 314-55-115(4) on acceptable prepaid accounts for licensees could apply to credits for returns provided there wasn’t “overextension of credit and you keep accurate accounting records.” Traditionally a “regulatory grey area,” she acknowledged this wasn’t WSLCB’s position but asserted “not allowing vendors to issue a retailer a credit in this case is really detrimental.”
    • Davies felt the current rules hurt small processors “who are not able to reimburse their retail partners.” She claimed one licensee had $60,000 of vapor products that needed to be returned. Davies urged “flexibility to allow them to issue a credit they can use later or perhaps exchange for compliant product.” She recommended the Board reconsider their position, even if it was just for the limited circumstances of this particular ban.
    • Board Member Russ Hauge asked whether WACA had “communicated to anybody in the agency” in writing. Davies replied that she’d spoken to Deputy Chief Steve Johnson whom she believed “talked to some other agency personnel.” The response she’d gotten was that the WAC in question “didn’t apply to returns.” Hauge requested Davies forward her earlier communication, calling the flavored vape ban “a special enough set of circumstances that we should maybe take a little more time in figuring out what we’re going to do here.”
  • Chris Marr, former WSLCB Board Member and lobbyist representing multiple licensees (audio - 3m, video). Marr last spoke to the Board on August 7th. He reiterated Davies’ point, calling the vapor product ban “the largest recall implemented by this agency.”
    • Marr said that the struggle of small businesses had already been recognized by the agency in the form of its proposed request legislation regarding medical cannabis/small producers. The ban compounded existing setbacks, with Marr deeming it “an existential threat” to licensees, adding that it was “the smaller producers and retailers who I believe will be hit the hardest.”
    • By comparison, he observed that the largest producers had product variety, adequate cash, and the greatest ability to leverage the economics of scale in sourcing new concentrates. Marr also pointed out that “small retailers can’t absorb the cost of eating recalled product on their shelves that processors can’t take back.” He advised a “plain language reading” of WAC 314-55-115 would let WSLCB “interpret” that rule in a more permissive manner.
    • Marr was aware the agency joined others like DOH and the SBOH in their evolving response to the vapor-related health crisis and noted the industry was working to react to the “cost and pain” of complying with the situation.
  • Gregory Foster, founder and citizen observer at Cannabis Observer (audio - 4m, video). Foster last spoke before the Board on August 7th. Foster expressed gratitude for the Board’s work, thanking Hoffman specifically, and addressed the “vaping associated lung injury situation.”
    • After attending the SBOH meeting where flavored products were banned, he said the vapor situation was hardly “unique to Washington state” while pointing out cases were “strangely confined to the United States.” Foster noted Massachusetts’ four month ban of all vapor products was an even heavier-handed approach and quoted the state’s governor, Charlie Baker, who told the media: “We didn’t enter this one easily. We appreciated the destruction it was going to create, and people certainly have access to the courts.” Foster agreed with Davies’ and Marr’s assessment that the state’s flavored vaporizable product prohibition was “creating pretty substantial destruction within the cannabis industry.” He expressed certainty about lost jobs and revenue in the cannabis sector and “probably on the nicotine vapor side you’re seeing businesses closing.”
    • Foster voiced skepticism as to whether state actions were “punishing bad actors,” positing instead that the relatively low number of confirmed vaping associated lung injuries in Washington was “testimony to the ways we have regulated the cannabis marketplace here.”
    • Instead, the state’s actions thus far centered on prohibiting “flavored” vape items. Foster noted that had been the purpose of legislation introduced earlier in the year which “didn’t go anywhere.” He believed it would have been preferable to let lawmakers deliberate, and lauded WSLCB’s “pushback” against moving with any greater haste. He concluded, “We need you to continue trying to provide a little bit of sanity in this situation because it’s hurting your regulated communities.”
  • Jim Sulton, former owner of A Bud and Leaf retailer in Olympia (audio - 4m, video). Sulton began by seconding Barfield’s comments on disparities hindering African American business owners in WSLCB’s implementation of legalization.
    • Pointing out that “part of the impetus [for legalization] has been related to racial disparities in the criminal justice system,” Sulton noted that “part of the rationale for establishing a legal regime was to rectify or reverse that problem.” Instead, “that has not been a priority here in Washington.”
    • He suggested there should be changes to both the criminal justice system and the racial composition of the legal market. As evidence of the former, Sulton called attention to a 2018 study of legalization’s impact on racial disparities in Washington’s cannabis arrests which found fewer overall arrests but an enduring disparity among “African American and White adults.” “And nobody blinked an eye,” he said, “no one is blinking yet.”
    • As an example, Sulton cited his experience leading the former Washington State Higher Education Coordinating Board, now the Washington Student Achievement Council (WSAC), saying that public university faculty had become less diverse than when he’d worked on the issue, despite having heard that “diversity is premium value” for the group. He closed by asking the Board to measure licensee racial disparity so they could take informed action.

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