WSLCB - Executive Management Team
(May 1, 2019) - Summary

[ Event Details ]

One chapter of retail licensing closes, and a new chapter including social equity provisions may be written.

Here are some observations from the Wednesday May 1st WSLCB Executive Management Team (EMT) public meeting.

My top 3 takeaways:

  • This week’s “collaboration project report” combined changes in retail licensing with extensive discussion about increasing social equity in Washington’s cannabis marketplace (audio – 2m).
    • The Board last discussed preparations for the work session during the April 16th Board Caucus.
    • A challenge before the agency is whether and how to fairly distribute several retail licenses forfeited or otherwise returned to the agency. Director of Licensing Becky Smith and Kaitlin Leeberg, a Management Analyst for Licensing, provided an update on the WSLCB’s cannabis retail licensing process.
    • Leeberg described the historical allotment of retail stores, starting with the original initiative (audio – 4m, handout).
      • The first retail license cap, decided by population data, was set at 334 stores statewide. The agency received over 2,000 applications during the first retail licensure window. In April 2014 a lottery by jurisdiction determined which applications moved ahead. WSLCB only issued 283 licenses as some jurisdictions received no applications and some lottery winners didn’t meet requirements.
      • In 2015, SB 5052 did what it did to the medical cannabis system and raised the retail cap by an additional 222 stores for a statewide total of 556. WSLCB received over 1,800 applications this time, prioritized based on criteria in the law. 387 applications were deemed “priority one” while priority two and three applications were administratively dropped in 2017. The agency issued 259 licenses during this retail licensure window.
      • In April 2018, WSLCB approved a board interim policy (BIP) for “retail title certificates” which allowed retail licensees to avoid certain requirements and fees if their license was situated in an area with bans or moratoria. Leeberg reported the agency had issued 43 retail title certificates under the BIP. Another dozen retailers qualified but had not pursued the certificate.
      • As of April 29th, WSLCB was in talks with 8 retail applicants who applied but haven’t completed the licensing process due to bans/moratoriums. They had been given 60 days to proceed with licensing or withdraw their application (handout).
      • Leeberg said Licensing had also decided to withdraw the remaining 51 priority one applications on hold. Those cancellations, without refunds, were expected to be completed by May 15th.
    • Smith told the group that after five years and meeting the requirements of the initiative and legislature, cannabis retail licensing “is a door we feel we can shut” (audio – 7m)
    • Smith said that “so far, we’ve received 11 [licenses] back” some of which are still under bans/moratoria, meaning WSLCB may not be able to license them. The agency wanted “a consistent and fair” process, and Smith was mindful of the need to “open it up” to prospective entrepreneurs.
    • Smith suggested several strategies for a new retail licensure window:
      • Survey jurisdictions to incorporate their needs. Director Rick Garza discussed this effort later in the meeting.
      • Analyze other state retail licensing processes, perspectives which Washington couldn’t gather in 2012. Tribal Liaison and Policy Analyst Brett Cain described his research later in the meeting.
      • Harmonize with other agency efforts to support minority-owned businesses. Smith, Leeberg, and Garrett had begun working with the Office of Minority and Women’s Business Enterprises (OMWBE).
        • Smith said about 25% of licenses were held by minority-owned businesses, numbers considered good by OMWBE’s standards. Smith wanted to survey existing licensees to get updated and improved demographic information.
        • Garrett explained that OMWBE was creating a “low risk certification” which removed many responsibilities from other state agencies working to facilitate minority-owned business development. She hoped to create a similar certification for WSLCB’s needs after more conversations with OMWBE.
    • Brett Cain shared progress on his look at social equity practices in other states and cities (audio – 4m, handout).
      • Cain said there was “a lot going on” in California.
      • Massachusetts hosts a “statewide social equity program.”
      • Cain said, “The states around the country that have these social equity programs in place, and it’s all pretty new, so it’s hard to gauge how effective they are at this point.” He later elaborated that he’d read articles on social equity programs suggesting they’ve had limited impact.
    • Cain explained his research was part of a larger white paper on social equity options he was composing for Chris Thompson, WSLCB’s Director of Legislative Relations, in an effort to figure out next steps around legislative initiatives, rules-based approaches, or in-house technical support.
      • Read Cannabis Observer’s most recent coverage of executive actions on cannabis-related bills.
    • Becky Smith opened up the discussion, saying WSLCB was considering a new licensing process for “small, minority-owned businesses” which would necessitate a change by the legislature. Garza elaborated that they’d spoken with the Washington State Office of the Attorney General (OAG) and found the law specifically prescribed how licenses were to be divided across the state (audio – 36m).
    • Garza, having heard some cities were eager for more retail licenses, expressed his interest in a survey of cities and counties to gauge overall interest in additional retail locations. If there were adequate interest, WSLCB would look at what legislation they could draft or support to accomplish that.
      • Garza was supportive of social equity legislation with an “opt-in” system allowing local governments flexibility to host programs beyond what the state offers if they choose.
      • In an upcoming EMT on May 15th, Thompson and Garza will share a legislative debrief on what agency issues did and did not pass during the session. From there, they planned to consider what the Board wants to do regarding social equity moving forward.
      • Garza emphasized agency request legislation for 2020 must be finalized in September.
      • “For all the concerns that some had about the lottery,” he said, “The lottery, y’know, didn’t discriminate. It basically says ‘if your number comes up, you get a license.’”
    • Rushford asked staff about “risks” across equity policies examined. Smith said that “we’ve really thought this through” and engaged with retailers over several years. Smith lauded the survey approach, and suggested reaching out to other agencies to potentially link to state small business resources on WSLCB’s website.
    • Garrett highlighted Seattle’s Women- and Minority-Owned Businesses (WMBE) policies and the ability to self-identify as a minority to the city. She claimed the program had not incurred fraud.
      • Even with 11 retail licenses returned to the state, Garrett did not want to “set them up for failure.” Smith said it “made sense” not to reissue them in jurisdictions with bans or moratoriums. The subject will be added to the next Cannabis Advisory Council (CAC) agenda.
    • Rushford asked about demographics on employment within the industry. She’d recently been called by the “economic development folks in Tacoma” asking what data was available.
      • Brian Smith, Director of Communications, mentioned a 2017 paper by the Washington State Institute for Public Policy (WSIPP) on employment and wages.
      • Garza said he expected a follow up report from WSIPP “in a month or two” and suggested the state Employment Security Department (ESD) could have information.
      • Becky Smith said her department conducted a “voluntary” survey of licensees about employees, benefits, and union participation.
      • Garrett observed that a census-based retail allotment strategy would have very different results if conducted now because of population shifts, an on-going dynamic not anticipated by I-502.
    • Enforcement Chief Justin Nordhorn asked about barriers to entry aside from licensing and warned against unintended consequences. Garrett noted business technical assistance, a lack of apprenticeships, and access to capital were all challenges though assistance programs may exist elsewhere. Becky Smith said access to capital will be a concern as long as cannabis remains a Schedule 1 drug federally.
    • Hauge said fee waiving/reduction would need statutory changes by the legislature. Garza believed the agency should get more input from King County and Seattle who have offered more of this manner of small business support than the state. “We’ve built a system,” Garza said, “that‘s so difficult, or it can be as a business, that whose it gonna hurt first? It’s gonna hurt the smallest businesses” as costs associated with regulations are disproportionate for them.
    • Cain said communities of color hesitate to participate in assistance programs based on prior treatment by governing institutions. Rushford agreed the stigmatization of cannabis is “very much still alive and well.” Garrett said the stigma was improving, but that it kept people from considering the industry when it was being formed.
    • Becky Smith said the agency planned to survey jurisdictions first, and eventually licensees. The EMT intends to follow up on this topic in mid-July after the next CAC meeting.
  • Chief Justin Nordhorn followed up on an earlier EMT work session on consistency of enforcement (audio – 9m).
    • Consistent treatment of cannabis licensees by WSLCB Enforcement Officers has been brought forward as an important issue.
      • During the March 20th EMT, Chief Nordhorn was assigned to lead the first work session (more recently designated “collaborative project reports”) to enable review by the Board.
      • In the Legislature, WSLCB enforcement power and the authority of the Board itself were debated through SB 5318 and other bills. At the time of publication, SB 5318 had been delivered to Governor Jay Inslee for executive action.
    • Enforcement leadership planned to share “general expectations” with their entire division. Nordhorn said these expectations had been distributed to Captains of regional offices, but not more widely yet.
    • Nordhorn stressed this wasn’t a topic for his department alone because “we have a lot of different information being provided to folks” across the agency. He suggested differing information was sometimes provided to licensees who asked around seeking favorable responses from agency staff.
    • Looking “cross-divisionally” beyond cannabis enforcement, Nordhorn’s staff planned to develop an original “tax enforcement component” for vapor products not based on their traditional structure. It was intended to allow auditors and enforcement to be more consistent. However, Nordhorn said their plans had been impacted by late changes to HB 1873, a vapor product tax bill currently awaiting executive action. “We’re working through what the final language actually means.”
    • Considering training, Nordhorn provided some figures from an analysis of fiscal years 2018 and 2019.
      • In FY 2018, WSLCB hosted 975 training “incidents,” which he said included “a couple hundred” formal classes and informal training “inside businesses” to deal with issues directly. Nordhorn estimated enforcement reached about 3,000 persons in FY 2018.
      • For the first three quarters of FY 2019, there were 672 training classes with “about 2,400 attendees.”
    • Enforcement intended to conduct training for “about 45%” of all retail licenses, and “about 30% for non-retail” licensees based on “operational impact areas.” Nordhorn admitted retail was “behind the curve” when it came to training resources, and knew there were “more unchecked businesses on the non-retail side” which he attributed to “capacity issues.”
    • During the initial work session, Nordhorn discussed a retail training curriculum developed by Spokane enforcement officers. Nordhorn noted “we see higher overall training” in the Spokane area. The department planned to consider a cost-benefit analysis of building a “dedicated cannabis unit” to consistently train across regions.
    • Nordhorn presented two options to expand the training program:
      • Online availability, including an “easy” powerpoint presentation;
      • A video would take “a couple months” to produce and “polish.” Nordhorn said if the video project were under $10,000 the agency wouldn’t need to take requests for bids, and concluded the budget was “doable.”
    • Nordhorn reiterated the need for coordination beyond his office: “if Enforcement is the only one focused on consistency we’re not going to be consistent.”
  • The agency denied a rulemaking petition on SMS advertising (audio – 3m, handout).
    • Hoffman presented the petition to the Board at the previous day’s Board Caucus and Rushford added consideration of the petition to the EMT agenda based on the quick turnaround of the Board’s response.
    • Hoffman explained The Cannabis Alliance raised an issue about SMS marketing messages, claiming WSLCB’s required notifications and warnings occupied too many text message characters.
    • Hoffman said that Matthew McCallum, WSLCB’s Marijuana Advertising Coordinator, reported that many retailers addressed this by “putting a link to the advertising in the text message that will then take them to the advertising with the attached warnings to it.”
    • She concluded that the agency could deny the petition and “move to rulemaking at a later date.” Hauge asked and Hoffman confirmed the linking option was available to licensees.
    • The Board unanimously denied the petition for rulemaking. Nordhorn said he’d include the workaround in the next WSLCB newsletter.