Is WSLCB Enforcement About to be Overhauled?

Change Ahead

The Washington State Liquor and Cannabis Board (WSLCB) may be facing some significant changes if two bills currently making their way through the state legislature become law. In the State House, HB 1237 has passed out of the House Committee on Commerce & Gaming and has been referred to the House Committee on Appropriations. And SB 5318, HB 1237’s companion bill in the State Senate, has passed out of the Senate Committee on Labor & Commerce and been referred to the Senate Ways & Means Committee. These bills would significantly change the way in which cannabis companies in Washington are regulated with respect to violations and enforcement. And while the bills aren’t perfect, we think these reforms would be a boon for the industry and a big step in the right direction.

What is doubly fascinating about these bills is that they are being considered in a climate in which ten bipartisan lawmakers signed and sent a letter to Governor Jay Inslee claiming the WSLCB has a “toxic culture” and asked for the governor’s nomination of WSLCB board member Russ Hauge be rescinded, claiming Hauge either was “ignorant of the facts, or purposely did not tell the truth” at a recent legislative committee meeting. The WSLCB has long been criticized by the cannabis industry for its uneven and unfair enforcement practices, but for these same criticisms to be wielded by the legislature is a huge elevation of these issues.

What the Bills Propose

Though they have some minor differences, such as SB 5318’s language on (a) generally requiring the WSLCB to adhere to Settlement Agreements made with licensees, and (b) more details on what a compliance program and inspections would entail, the main thrust of the two bills are largely the same.

De minimis violations

The bills would require the WSLCB to have procedures set in place for de minimis violations (meaning too small to merit consideration), something they currently don’t have. This means that for violations that are so small that they basically harm no one and barely violate the rules, the WSLCB cannot issue a violation. The bills don’t define how small de minimis is, but I have worked with clients facing cancellation of their license who face facts stated by the WSLCB including payment of utility bills below $100 paid from the licensee’s personal account. Technically a violation, but de minimis.

Waiving violations that are quickly rectified

HB 1237 would require the WSLCB to have procedures for waiving fines and administrative sanctions for violations that are rectified within 7 days so long as those violations have no “direct or immediate relationship to public safety.” Rather poorly written, this phrase is also not more closely defined, but the administrative code does include violations of public safety that include sales to a minor, underage employees, cannabis purchased and sold from an unauthorized source, and others. Notably, SB 5318 does not include this language.

Establishing a compliance program

The bills would require the WSLCB to establish a compliance program where licensees can request compliance assistance and inspections without fear of the WSLCB issuing violations in the process, provided that if there are noncompliance issues of the licensee, the issues are resolved within a specified period of time. This just seems like good sense, doesn’t it? The WSLCB should be focused on ensuring licensees are complying with the rules, and if they can do that without punitive measures, they should do so. This could also foster improved relations with licensees and the WSLCB. Currently, licensees cannot go to the WSLCB with issues or questions without fear that their communications would trigger an investigation or issuance of violations.

Ceasing license cancellation on a first offense

The bills would require the WSLCB to no longer cancel licenses on a first offense unless the offense concerned diversion of cannabis to illicit market or across state lines, sales to minors, diversion of revenue to criminal enterprises, use of firearms, or other criminal behavior, or unless the licensee had a pattern and practice of intentional and flagrant disregard of the law. A good portion of the work we do involves license cancelling events for financial misdeeds or mere mistakes, and some of these were first offenses. This was improved somewhat by the WSLCB’s recent interim policy on use of personal funds, but the proposed law goes much farther. There is no other industry that faces such onerous rules. Even the WSLCB itself is far easier on alcohol businesses, who never have to face their business being immediately shuttered for comparatively minor financial issues.

Providing amnesty for all violations before April 30, 2017

Interestingly, the bills would also disallow the WSLCB from issuing any violations for conduct that occurred before April 30, 2017 unless that conduct involved diversion of cannabis to illicit market or across state lines, sales to minors, diversion of revenue to criminal enterprises, use of firearms, or other criminal behavior. There’s no information as to why that date was chosen, and this section is likely more controversial than the others. I’ve heard one complaint that this is specifically related to conduct by some of the largest companies in the state seeking amnesty, but I cannot verify that claim. The WSLCB previously considered an amnesty program, which would have been far messier than this proposed language. Still, this leaves one wondering why that date, and why the date of the conduct should impact whether or not the conduct is given amnesty or not.

Final Thoughts

Expect these bills to be revised further as they advance through the legislature, if they advance further at all. There are numerous cannabis related bills currently being considered and we plan to cover more of them, but we jumped on this one due to its importance and the fact that it has been voted out of committee, a hurdle that many bills don’t make. The bills are not perfect, particularly on amnesty, but overall they would be a huge step forward for the industry and a welcome respite to businesses that face being shut down daily for a single mistake that does not threaten public safety.

Aaron Pelley

Cultiva Law

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