Newsletter Summer 2017

 
Table of Contents 
Licensing
Enforcement
Finance
Laws and Rules
Updates
 

Licensing

Plan Ahead to Make Changes to Your Licensed Business
One of the most frequent requests from licensees is to make a change to their business. Below are some tips and reminders about how to make a change properly. Change requests must be completed, and prior approval obtained, before you make any changes to your licensed premises, operating plans, and financing. Change requests can take up to 90 days to process. To provide the most efficient service, you may only request one change at a time. Multiple requests at the same time create confusion and take longer to process. To ensure your change request is processed as quickly as possible staff will withdraw any additional change requests made before the last request is completed. 
 
Moving Locations
The law requires the WSLCB to investigate any new location. The WSLCB must first approve new locations prior to moving your business. If you move without prior approval, you would be selling cannabis from an unlicensed location, which is against the law and you may lose your license. To request a change in location, apply through Business Licensing Services (BLS). 
 
Selling Your Business
Its important to remember that you can sell your business, but you cannot sell your license. Anyone who wants to own a licensed cannabis business must apply for a license and meet all licensing requirements. It is against the law for anyone to own any part of a cannabis license without vetting and approval from the WSLCB. An Assumption is required when the Unique Business Identifier (UBI) is changing. When you apply for an assumption, the applicant is required to pay license fees. A Change in Governing People or Entity is required when you are changing the percentage of ownership in your business, but your UBI remains the same. To apply for an Assumption or A Change in Governing people, fill out an application at BLS.
 
Source of Funds
After you are licensed, all true parties of interest, including financiers, must continue to disclose the source of funds for all money invested in the licensed business. You can apply directly to the WSLCB to make these and other changes in your business. Use this website for change requests to: 
  • Add a Financier
  • Alter your Cannabis Site and/or Operating Plan
  • Add a Medical Cannabis Endorsement  
  • Expand your plant canopy
  • Add a Processor License to your producer license
  • Splitting a Producer and Processor License
 
Labeling/Packaging Changes
You are not required to submit change requests for changes to your packaging, unless you are changing packaging for edibles. If you want to change your edibles packaging, please vist the LCB website for information about how to get edible products, packaging, and labeling approved. All cannabis packaging must meet the requirements in WAC 314-55-105.
 
Retail Medical Cannabis Endorsements
Retail licensees that hold a medical cannabis endorsement are required to have a certified consultant on staff. Once you meet the requirements, you can apply for a retail medical endorsement at any time. If you do not have a certified consultant on staff, you may lose your medical endorsement at renewal. For additional information, go to the Washington State Department of Health’s medical cannabis website.
 
 
How to Maintain Your Cannabis License
After you get your cannabis license, you must continue to meet all license qualifications to keep it. You can find the licensing requirements in WAC 314-55. Some requirements to maintain your license include: 
  • Staying up to date in the traceability system
  • Keeping your WSLCB approved security system up and working 24/7
  • Monthly tax reporting
  • Following state and local laws
  • All changes in location, operating plan, financing, or your floor plan require prior approval from the WSLCB.
Cannabis licensees must comply with all city and/or county rules including permitting, zoning and building codes. Local authorities may take action against state licensees who are not following local requirements. Your Enforcement Officer is your primary contact after you have received your license. If you have questions about how to keep your license in good standing, contact your Enforcement Officer. If you do not know their contact information, look on our website.
 

 

Enforcement

Direct and Indirect Money's Worth Violations
Enforcement continues to receive questions from the industry regarding Direct and In-Direct Money’s Worth. This provides a great opportunity to clarify tier restrictions to our licensees. We’d like to expand on Bulletin No 15-02 and address a few of the more recurring issues.
 
Tied House Laws
I-502 was built along the same lines as the three tier system found in alcohol. Tied house refers to the local brewers who, prior to prohibition, often had ownership ties to the taverns - selling to them on extended credit terms, furnishing them with equipment and supplies, charging low or no interest, and paying rebates for pushing their brand or carrying it exclusively. This relationship became known as "tied-houses" because both entities were enjoined in their business practices. Competition for control of the retail outlets was fierce and tremendous pressure was exerted on retailers to maximize sales without regard to the well-being of customers or the general public. Historically tied-house abuses have led to the formation of monopolies and organized crime. The purpose of the separation of tiers is to eliminate “tied house abuse.”
 
RCW 69.50.328 reads, “Neither a licensed cannabis producer nor a licensed cannabis processor shall have a direct or indirect financial interest in a licensed cannabis retailer.” Keeping that in mind, there should be no personal or contractual relationship between a processor/producer and a retailer. WAC 314-55-018 makes reference to no “agreement written or unwritten,” thereby prohibiting any special deals between the tiers. The WAC further provides examples of what is restricted. Bear in mind that these examples are not exhaustive. 
 
Some of the current issues we are encountering surrounding tied house violations are:
  • Discounts
    • Processors giving discounts to individual retailers.
    • If this is occurring, specifically for one or two retailers, and not uniform across all of the retailers, there is a money’s worth violation. 
  • Leasing
    • Leasing of land or equipment - No land, building, product or equipment can be “rented or leased” between the tiers.
    • There is no lending of the producer/processors equipment, such as shelves or coolers, even for the intended purpose of displaying or housing the processor’s product.
    • Items can be sold outright, but only at true market value.
  • Giveaways 
    • Giving anything of value to a licensee or their employees would constitute a violation.
    • There are only two exceptions to the tier separation prescribed in: RCW 69.50.585, regarding promotional items, and WAC 314-55-096, regarding educational samples. 
  • Labeling
    • A processor cannot package and brand a product with the retailer’s tradename on it, this refers back to written or unwritten agreements.
    • This also creates undue influence as retailers are not going to purchase other retailer brand names, even if the price is less expensive. 
 
We thank you for your cooperation and compliance with these laws. If you have further questions or concerns, please contact your local enforcement officer.
 
 

Finance

Cannabis Excise Tax Payments
The Board adopted changes to WAC 314-55-089 that became effective July 1, 2016 which prohibit a licensee from paying the cannabis excise tax in cash unless the licensee has obtained a waiver from the Board or pays a penalty equal to ten percent of their excise tax obligation. Cannabis excise tax payments are payable only by check, cashier’s check, money order, or electronic payment. Since enacting this change the amount of cash payments has dropped considerably as illustrated in the chart below.
 
  For a larger view of this chart click here
 


Laws and Rules 

 
Cannabis Rulemaking Update
Here’s a brief summary of current cannabis-related rulemaking: 
 
Adopted Rules
Lab and Quality Assurance (QA) Testing rules were adopted May 31, 2017 by the Board. They will become effective on August 31, 2017.
  • The rules and the Concise Explanatory Statement are available on the “Recently Adopted Rules” webpage under “Laws and Rules” on the WSLCB website.
  • Rule changes include several changes to QA testing requirements, changes to the good laboratory practices checklist, as well as proficiency testing requirements and lab suspension/revocation provisions, among other related items.
 
Open Rulemaking
All proposed rule information is available on the “Proposed Rules” webpage under “Laws and Rules” on the WSLCB’s website. 
  • Rulemaking is currently open for Packaging and Labeling. We anticipate bringing a CR-102 with draft rule language to the Board in August, 2017. The WSLCB has convened an industry work group and is working with Colorado and Oregon to gather information for potential rule changes.
  • Rulemaking is currently open for producer licenses and tiers considerations. The CR-102 with proposed rule language was approved by the Board May 31, 2017. A public hearing will be held July 12, 2017.
  • Rulemaking will be opened in July 2017 for rule changes needed as a result of bills passed during the 2017 legislative session. This rulemaking will include rule changes to accommodate changes in statute, as well as technical and clarifying rule changes identified by staff and stakeholders.
     
 
2017 Cannabis Legislation 
Here’s a brief summary of the bills that have passed in the 2017 Legislation Session (Effective July 23, 2017): 
 
HB 1250 – Cannabis lockable drug box
Authorizes licensed cannabis retail outlets to receive from another person or entity and donate, at no cost, to adults age 21 and over, to qualifying patients age 18 and over, and to designated providers (1) a lockable box intended for the secure storage of cannabis products and paraphernalia and (2) literature about such a lockable box.
 
SHB 1462 – Cannabis edibles/sanitary
Requires the Department of Agriculture to regulate cannabis-infused edible processing the same as other food processing under the state food processing act. Requires a cannabis processor that processes, packages, or makes cannabis-infused edibles to obtain an annual cannabis-infused edible endorsement. 
 
SSB 5130 – Cannabis license fees
Imposes a nonrefundable one-time additional fee of $480 on cannabis applications and renewals. Requires money from the fee to be used for the replacement of the traceability system. Increases cannabis license and renewal fees to $1300.00.
 
ESSB 5131 – Addressing provisions concerning cannabis 
  • Modifies cannabis provisions with regard to research licenses, local authority and Tribe notifications, the retail licensing application process (prioritization), processor wholesale events, and jurisdictional requirements.
  • Many amendments were added to the bill, including additional restrictions on outdoor advertising, studies on hemp processing and recreational home grows, and disclosure of contracts for licenses, etc.
  • Defines “immature plants or clones,” and includes provisions allowing the sale of immature plants and clones or seeds to members of a registered cooperative, qualified patients, designated providers, and research licensees. Allows research licensees to sell plants to licensed producers (previously prohibited).
  • Authorizes the private exchange of cannabis between individuals so long as it’s not for consideration of any kind and under the possession limits for individuals under chapter 69.50 RCW.
  • Creates a voluntary program for the certification and regulation of organic cannabis products administered by WSDA.
 
 

Updates

 
Traceability Replacement Project Update 
WSLCB is in the process of replacing the system currently used to implement ‘seed to sale’ traceability provisions with a highly secure, reliable, scalable, and flexible system provided and hosted by a third-party vendor. The contract with BioTrack, the current traceability vendor, will terminate October 31, 2017.
 
Traceability efforts and the system utilized by our licensees go hand-in-hand. After a thorough selection process, the Apparent Successful Vendor (ASV) was announced Thursday, June 8, 2017. MJ Freeway, the ASV, will embrace a partnership role to help manage, implement, modify and advance the system as it develops. The system’s scalability will be pertinent; as the industry grows, so must the ability to collect additional data. 
 
Timeline
The planned timeline for build-out, testing and implementation of the replacement traceability system is highly aggressive, with all deliverables being complete by October 31, 2017. As part of the contract, MJ Freeway will be responsible for hosting and supporting the system. During this time, preparation for outreach and communication efforts surrounding transition to the new system will also begin. WSLCB began contract negotiations with MJ Freeway June 19, 2017.  
 
Solution Components
The system is comprised of three major components:
  1. Traceability activity reporting
  2. Compliance reporting
  3. System interfaces
 
Traceability Activity Reporting
  • Collects and maintains all traceability activities through a common, publicly available API
  • Provides a basic web-based user interface for licensees, labs, and co-ops to report traceability activities
  • Provides an automated way for licensees, labs, and co-ops to report traceability activities using third-party software systems
  • Implements a minimum set of rules for capturing data 
 
Compliance Reporting
  • Provides a variety of reporting capabilities that compare traceability activities to business rules
  • Provides access to compliance reports via web pages, mobile devices, and files 
 
System Interfaces
  • Provides the ability to extract information for state partners and WSLCB systems 
  • Provides the ability to update and display relevant Traceability information from LCB systems (e.g. licensee information from the enterprise Licensing and Case Management system, tax obligations from the Tax and Fees system).
 
RFID Not Required
The WSLCB will not require RFID as part of the cannabis traceability project. Our Request for Proposal (RFP) was clear that the cannabis seed-to-sale traceability system must support a variety of tagging methodologies such as bar codes, RFID, etc. The RFP requirements did not allow a vendor to make any assumptions regarding use of a single tagging methodology or allow vendors to include any such costs affecting the state or our licensees in their proposal. In addition, unique plant and inventory identification numbers will be centrally created, maintained, and made available to third-party software systems via the API. 
 
Traceability Advisory Group
As the WSLCB prepared the RFP, we engaged representatives of the major industry trade organizations. We held several meetings together to gather input and clearly communicate our intentions.   
 
 
Research License Information Sessions
On July 18, 2017 the WSLCB will team up with our Scientific Reviewer, Science Solutions, to provide information to interested prospective applicants for the research license. LCB staff will be on hand to address questions about the licensing process, traceability issues, and laws and rules. Our partners at Science Solutions will address the scientific review process.
 
Locations
 
 
Feedback
Please take a moment to give us some feedback on this newsletter by participating in a brief survey.