WSLCB – Special Board Meeting
(July 17, 2019)

Here are some observations from the Wednesday July 17th Washington State Liquor and Cannabis Board (WSLCB) Special Board Meeting. This was a normal agency board meeting designated “special” as it was planned outside the bi-weekly cadence; next week’s board meeting on July 24th has been cancelled.

My top 3 takeaways:

  • The Board extended interim policies, opened a new rulemaking project, and heard a rulemaking update.
    • At last week’s Board Caucus, WSLCB Policy and Rules Coordinator Kathy Hoffman explained the need to extend the deadlines on a suite of cannabis packaging and labeling (PAL) board interim policies (BIP) adopted in January. The opening of a new round of PAL rulemaking appeared to precipitate a request for a deadline extension from the Washington CannaBusiness Association (WACA). The BIP revisions shifted the deadline for compliance with the PAL rules originally adopted in May 2018 (audio – 6m, video).
      • Deadline extended six months to July 1, 2020:
        • BIP-05-2018 – Cannabis Packaging and Labeling Rules Implementation  
        • BIP-07-2018 – MJ Labeling – False and Misleading Clarification
        • BIP-09-2018 – MJ Labeling – MIE Colors and Homogenization
        • BIP-10-2018 – MJ Labeling – MIE Colors
      • Deadline extended to January 1, 2020: 
        • BIP-08-2018 – MJ Labeling – Curative or Therapeutic Effects
        • Hoffman anticipated WSLCB would have rules in place that incorporate the requirements of SB 5298 by the end of the year.
        • See Cannabis Observer’s coverage of SB 5298’s passage.
    • Hoffman next brought forward a CR-101, for the agency “to consider establishing a voluntary compliance program within our enforcement division.” The topic had been expected for weeks as the agency was mandated by law to give licensees more compliance support as opposed to punitive enforcement practices. The program “would be created in consultation with marijuana businesses and licensees, and that will be designed to allow licensees to consult” with WSLCB towards compliance with regulatory requirements. Hoffman projected the following timeline, adding, “I’m anticipating that there will be significant stakeholder engagement” (audio – 3m, video):
      • September 4th, 2019 – Notice published by the Code Reviser.
      • October 4th, 2019 – CR-101 written comment period ends
      • January 22nd, 2020 – CR-102 filed
      • March 18th, 2020 –  CR-102 written comment period ends/public hearing
      • April 15th, 2020 – CR-103 filed
      • May 16, 2020 – Effective date
    • Lastly, Hoffman provided a rulemaking update (audio – 5m, video).
      • Hoffman’s last rulemaking update was at the July 9th Board Caucus.
      • Cannabis Penalties (WSR 18-22-099). The workgroup had been “meeting consistently” since March and developed a “solid rule set” which would be distributed to stakeholders around August 5th. Hoffman tentatively scheduled a listen and learn session for August 29th.
      • True Party of Interest (TPI, WSR 18-22-054). Hoffman’s staff was incorporating implementation of HB 1794 and provided the penalty workgroup with draft rules including the definition of business “control.” The agency was planning an August 12th meeting with industry partners and listen and learn sessions in September.
      • Quality Assurance (QA) Testing and Product Requirements (WSR 18-17-041). A listen and learn session on cost mitigation and phase-in strategies was rescheduled for August 22nd. Hoffman planned to include conceptual draft rules with the session invitation next week.
      • PAL (WSR 19-12-029). Hoffman said, “We’ve received a significant amount of comment from our regulated community” in addition to economic data on potential impacts. Listen and learn sessions for these rules will be scheduled in September. Agency staff were “redesigning” the PAL rules to “increase readability and decreasing complexity.”
      • Vapor Rules (WSR 19-13-036). Hoffman described the rules as “on track” and WSLCB received no feedback during the comment period.
  • WSLCB Director of Communications Brian Smith provided a summary of the troubled traceability system release (audio – 6m, video).
    • See Cannabis Observer’s recent updates on this week’s traceability system release.
    • Breaking from the meeting agenda given unusual circumstances, Board Chair Jane Rushford invited Smith to provide a public update on recent events triggered by the attempt to upgrade the state’s seed-to-sale traceability software by vendor MJ Freeway.
    • Smith explained that WSLCB tested Leaf Data Systems release 1.37.5 through Monday at midnight. “It was the biggest [release] to date,” he noted and at the time of release “met all the state criteria” in the test environment.
    • However, when the system was deployed at 7am on Tuesday morning, “an error was found in the release that caused a breakdown in the ability for licensees at the wholesale level to do business transactions.” Cannabis lab results were disassociated from inventory preventing transfers and Smith said “the root cause has not yet been identified but that is being investigated right now.”
      • This admission late on Wednesday morning indicated the patch that was deployed earlier that morning to get Leaf operational again may not have been a permanent repair of the underlying issue. During triage conversations with third-party software providers, it was reported that MJ Freeway had floated the idea of operating a continuously running script to rewrite associations between lab results and inventory. It’s unclear if that was the approach taken by the agency and its vendor.
    • To mitigate further potential problems, the agency steering committee for the traceability project decided to shut down Leaf Data Systems around 1:30pm on Tuesday. Smith said MJ Freeway was required “to find a solution that’s going to be able to enable us to bring this system back up” that was “tested to [WSLCB]’s satisfaction and deployed.” If a solution was not identified, the agency intended to rollback the system to version 1.35.6 and discard the data collected on Tuesday.
    • MJ Freeway supplied a repair script at 3am and the agency tested it until 4:30am on Wednesday with the voluntary assistance of three software integrators. “Things went fairly well” that night and staff became confident that the “dissociation” of lab results was sufficiently resolved.
    • A simultaneous fix for locked out users was also approved and as of 6am Wednesday morning traceability was again allegedly “fully functional” with “no impact to the integrity of the data.” Smith reported meeting with MJ Freeway staff at 9am to discuss “only a couple of tickets” for assistance.
    • At the conclusion of Cannabis Observer’s traceability update on Wednesday morning, we expressed learned skepticism about the likely stability and integrity of the latest re-release: “it remains to be seen how well the patch was executed and what other unanticipated issues may lurk in MJ Freeway’s closed, proprietary source code.” As subsequent public comment indicated during this board meeting, the WSLCB and its vendor MJ Freeway still had not achieved a stable traceability system.
  • A bevy of comments from business owners and the public were heard, many of which addressed the bungled traceability release.
    • Gregory Foster, Cannabis Observer founder and traceability advisory committee member, spoke about the “challenging couple of days” for those dealing with the troubled software. He said, “At this point it’s fair to say that the inadequacies, and I would go so far as to say the incompetence” of MJ Freeway had become “self-evident,” before predicting the agency would hear renewed calls to cancel the contract with the vendor. Noting the complexity inherent in the situation, Foster acknowledged WSLCB was “painted into a corner” with few good options. While other legal cannabis states experienced issues with their traceability software vendors, Foster felt Washington’s vendor was “by far the worst.” As WSLCB had already switched traceability vendors once, he recognized the agency’s reluctance to do so again. But he felt it was important for the agency to move beyond operating a “central node” for the industry’s functionality as it was prone to downtime and dysfunction. “I’m advocating for an approach that moves more towards a reporting and compliance-oriented approach where the agency defines the data that it needs, when it needs it, and in the format that it needs.” Business to business transactions could be managed by the industry itself. Foster closed by encouraging agency members attending the regulator’s roundtable of legal cannabis states the following week to begin inquiring into the experiences of other states with their traceability vendors (audio – 4m, video).
    • Mark Ambler, founder of the Tier 1 Producer Association (T1PA), introduced himself as the newest Cannabis Advisory Council (CAC) appointee and offered to marshall Tier 1 grower feedback in support of policies helpful to them. One suggestion was to let licensees be “seed producers” and potentially export cannabis genetics outside Washington. Another idea, popularizing cannabis leis or bouquets, built on Ambler’s Hawaiian background (audio – 2m, video). 
    • Vicki Christophersen, Executive Director and lobbyist for the Washington CannaBusiness Association (WACA), thanked the Board for the extending BIPs and Hoffman for the “bang up job” she had been doing (audio – 4m, video).
      • On PAL, Christophersen sympathized with the need to keep cannabis items away from children but said the agency was in a “subjective situation” for judging appropriate packaging and that it cost businesses “thousands of dollars” to get products approved. “It is really crippling a lot of folks, particularly the smaller businesses in the state,” she asserted.
      • On traceability, Christophersen took a broader view of the system’s history saying, “we’re five years in, with two vendors, and it hasn’t worked.” She echoed Foster’s comment on looking for a new vendor and argued that state law required seed-to-sale tracking but did not require the agency to manage it. “We need to trust the licensees to trace their product.”
      • On SB 5318’s restructuring of WSLCB enforcement, Christophersen said her organization was “very appreciative” of WSLCB’s collaboration. However, she warned that “translation” of legislative and agency intent had yet to reach enforcement officers who continued issuing complaints capable of triggering license cancellation for infractions that would merit corrective action rather than a violation under the new law. She asked for help communicating an emphasis on compliance and only targeting problems that directly impact public safety.
    • Jim MacRae of Straight Line Analytics shared thoughts on several topics (audio – 4m, video).
      • For medical cannabis, MacRae suggested a legislative request “aimed towards doing something to repair the damage that is being done over the past couple of years to the delivery and receipt” of medically compliant cannabis. MacRae pushed for reconsideration of reforms suggested in medical stakeholder documents provided to WSLCB in the summer and fall of 2018 which had been received “too late” for agency consideration during the 2019 legislative session.
      • Regarding the extended BIPs, MacRae felt that BIP 07-2018’s claim of “increased risk” for cannabis products being confused for alcohol wasn’t a reasonable fear. “If they’re searching for alcohol and they get cannabis instead, I simply can’t envision that being a public safety risk.” For BIP 08-2018, he believed the intent of SB 5298, “to allow reasonable, non-[Food and Drug Administration (FDA)] uncompliant [sic] language” wasn’t clear enough in the Board’s policy, leading them to take on a quasi-FDA role.
      • Lastly, MacRae encouraged the agency to “stop spending good money after bad” on traceability. 
    • Mike McDonald, representing Endicott Enterprises and owner of three retail licenses, talked to the Board about “negative impacts from the enforcement or undue hardship” put on his business by state cannabis advertising regulations, specifically building signage. He claimed that the sign for one of his stores was under the limit of 1600 square inches, but its “light box” was over this amount. While negotiating a resolution, McDonald was given verbal and written violations which caused him to have the building’s light boxes removed at a cost to his business of $30,000, an “undue hardship” as he had seen other stores with bigger lightboxes. He called for “equal enforcement” of signage rules statewide and lamented “answer shopping” by licensees (audio – 4m, video).
    • Lukas Hunter, Director of Compliance for Harmony Farms, talked about his company’s ongoing traceability problems which had already cost them roughly $100,000 in orders. Hunter reported his company was still unable to issue manifests, contrary to Smith’s report that the issue had been resolved. “The impact is quite large,” he said, explaining their company was hardly alone in combating problems from the still unresolved software release (audio – 1m, video).
    • Brook Davies, also speaking on behalf of WACA, reiterated Christophersen and Hunter’s points about traceability challenges. “Our licensees are still not able to conduct business,” she said, and highlighted the impact on transport companies. Davies promised to collect and make available complaints from their members (audio – 1m, video).

Here are shared documents for your review:

  • Agenda
  • Rulemaking: Voluntary Compliance Program (Approved)
    • CR-101 – Board Approval to File (v1, v2) (unsigned) (Jul 17, 2019)
    • CR-101 – Issue paper (v1, v2) (Jul 17, 2019)
  • Board Interim Policies (BIP)
    • BIP-05-2018 (v1, v2) – Cannabis Packaging and Labeling Rules Implementation
    • BIP-07-2018 (v1, v2) – MJ Labeling – False and Misleading Clarification
    • BIP-08-2018 (v1, v2) – MJ Labeling – Curative or Therapeutic Effects
    • BIP-09-2018 (v1, v2) – MJ Labeling – MIE Colors and Homogenization
    • BIP-10-2018 (v1, v2) – MJ Labeling – MIE Colors
  • Complete Audio (MP3)
  • Complete Video (Periscope)

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