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washington hemp In light of the recent federal legalization of industrial hemp, Washington lawmakers are taking a hard look at the state’s hemp program. Senators Bob Hasegawa (D) of Beacon Hill, Steve Conway (D) of Tacoma, and Karen Keiser (D) of Kent recently introducing Senate Bill 5719. The stated purpose of SB 5719 is as follows:

Authorize the growing of hemp as a legal, agricultural activity in this state. Hemp is an agricultural product that may be legally grown, produced, processed, possessed, transferred, commercially sold, and traded. Hemp and hemp products produced in accordance with this chapter may be transferred and sold within the state, outside of this state, and internationally. Nothing in this chapter is intended to prevent or restrain commerce in this state involving hemp or hemp products produced lawfully under the laws of another state or country.”

The bill requires Washington comply with the 2018 Farm Bill, which removed industrial hemp from the federal Controlled Substances Act, and which provides for state-and tribe-level programs for the cultivation of industrial hemp. As such, the Washington State Department of Agriculture (“WSDA”) would need to submit a plan to US Department of Agriculture (“USDA”) pursuant to the 2018 Farm Bill. The plan must address licensing, THC testing, enforcement, and a host of other topics required under federal law.

It’s too early to tell whether SB 5719 will ultimately become law, but it’s worth keeping an eye on at this point (and will be covered in our upcoming free CBD Webinar on February 21 at 12:00 PST). Here are some of the key provisions:

Food and Hemp

SB 5719 would repeal Washington’s Industrial Hemp Research Program (RCW 15.120 et seq.) completely. This program was created under the 2014 Farm Bill, which was fairly light on details and limited to hemp cultivation for “research” purposes. Washington’s hemp program is fairly limited and has never really taken off like it has in Colorado, Kentucky, and Oregon. Washington’s hemp law is also confusing thanks to RCW 15.120.020 which prohibits the “production of any part of industrial hemp, except seed, as food, extract, oil, cake, concentrate, resin, or other preparation for topical use, oral consumption, or inhalation by humans[.]” This provision only refers to the production of hemp, not the sale of hemp products, including widely popular hemp-derived CBD (“Hemp-CBD”) products. However, it has also stunted the retail sale of hemp products intended for human consumption under the idea that if it’s illegal to produce hemp for human consumption it is also legal to sell hemp products for human consumption. This would no longer be an issue if SB 5719 passes. However, SB 5719 does come with some ambiguity.

Under, SB 5719 “CBD and CBD products derived from hemp are considered a food product that must be tested and treated in accordance with other agricultural crop derived food products for human and animal consumption.” This could lead to confusion. For example, a Hemp-CBD topical cream would still have to be “tested and treated” as food. That is inconsistent with FDA regulation which treats food and cosmetics differently. Additionally, what does it mean to “treat” something as food? I read it to refer to things like manufacturing, labeling, and storing Hemp-CBD, but I could be wrong.

Licensing and Seeds

The WSDA would issue hemp producer licenses. Current hemp licensees could transfer into Washington’s new program once it’s up and running.  Hemp producers will only be allowed to use seeds listed in SB 5719 or approved by the WSDA. The bill also contains a clever provision that distinguishes seed varieties based on THC percentage. Certain seed “cultivar” (i.e., “a variation of the plant Cannabis sativa L. that has been developed through cultivation by selective breeding”) will be exempt from THC testing. WSDA will have the authority to approve seed cultivar and determine whether THC testing is required. Cultivar that were brought into Washington state before January 1, 2022 so long as “the state has planting, growth, and stability records covering at least three years.”

Even though seeds will be regulated fairly robustly, SB 5719 does not indicate the need for seed-to-sale traceability as the WSDA will not be responsible for determining whether a hemp product was derived from an approved hemp cultivar.

Regulatory Authority

Though SB 5719 is a major overhaul, WSDA would still have authority over hemp in the Evergreen State. Both marijuana and hemp are ways to describe cannabis so it’s natural to wonder what is the LCB’s role in regulating hemp under SB 5719? SB 5719 specifically states that “all rules relating to hemp, including any testing of hemp, are outside the control of the [LCB].” However, the WSDA is mandated to consult with the LCB to establish rules and policies to prevent cross pollination between marijuana and hemp crops. In the event that a documented cross-pollination erupts between two farms growing hemp or marijuana, the farm operating first will be the victor. This first-in-time law would give marijuana farmers a massive upper-hand, at least initially, as Washington’s marijuana program is older and much larger than the hemp program. The WSDA and state lawmakers will undertake a task force for determining the need for crop insurance.

Bottom line

SB 5719, if passed in its current form, would drastically change Washington’s hemp laws. Like the 2018 Farm Bill, it’s a much more commercial friendly scheme. If you agree or disagree with the current version of SB 5719, you can submit comments here.

If SB 5719 becomes law, it will take effect immediately. Given that there are several time-sensitive provisions in the bill, it makes sense to start planning now. We’ll keep an eye on this and other hemp-bills in Washington and other states.

In late January, Portland hosted the Cannabis Collaborative Conference (“CCC” or “Conference”), an annual forum created by cannabis industry leaders, aimed at addressing the most pressing issues facing this emerging market. This year’s conference focused on the future of the cannabis industry.

Rick Garza, Director of the Washington State Liquor and Cannabis Board (“WLCB”), was one of the key speakers at this year’s Conference. Mr. Garza discussed the possibility of Washington state allowing small cannabis farmers to sell directly to consumers. This practice would be comparable to that allowed for wineries, breweries and distilleries. If approved by the Washington State Legislature, this move would afford small growers an opportunity to increase their sales and, consequently, boost the local economy. This initiative would mirror the practice adopted by several Canadian provinces, which allow licensed producers to sell marijuana to consumers at cultivation facilities, and states like Colorado and Oregon, which authorize licensed cannabis growers to concurrently hold retailer licenses.

washington oregon cannabis marijuanaThe Washington cannabis regulator was also joined by Steve Marks, Executive Director of the Oregon Liquor Control Commission (“OLCC”). Both discussed upcoming changes to the Washington and Oregon programs, which respond to the ongoing and growing issues of oversupply. As we previously discussed, Oregon’s supply has far exceeded local demands: the state is currently sitting on approximately 1.4 million pounds of marijuana that state and federal laws prohibit from selling outside state lines. This tremendous oversupply in Oregon has caused prices to crater, putting many licensed growers on precariously thin ice. In 2018, the wholesale price of Oregon flower dropped from $3.90 per gram at the beginning of the year to $1.86 as of the end of the summer. Washington growers find themselves in an equally challenging situation.

In addressing the overproduction issue and interstate leakage, the OLCC leader said he expected more discussion about legislation capping the number of cannabis business licenses in Oregon. However, as we explained before, controlling supply by capping Oregon licenses as a fearful response to interstate leakage could also incentivize black markets, especially for Oregon sales, because a cap would increase the prices of cannabis.

Mr. Marks also shared that he has seen an infusion of capital into Oregon cannabis companies from investors who believe marijuana will become federally legal. Similarly to those investors, we believe federal legalization is merely a matter of time and that it will help put an end to unapproved interstate leakage. Indeed, the federal prohibition of cannabis is encouraging unscrupulous and desperate cannabis businesses to cut their losses and sell their surplus in the black market.

Although solving the issue of oversupply and interstate leakage will inevitably require the federal legalization of cannabis, it is encouraging to know that Washington and Oregon cannabis regulators are actively exploring ways to improve the industry and insure its sustainability. We expect to see some very important developments in both states in 2019, in addition to any federal law updates.

hemp cbd farm act

In December 2018, Congress passed the Agricultural Improvement Act of 2018 (better known as the “Farm Bill”). Among other things, the passage of the bill removed industrial hemp from the federal Controlled Substances Act, allowing legal production of the crop. Despite this landmark legislation, pitfalls still lay on the path ahead. The legality of many industrial-hemp derived cannabidiol (“CBD”) products is in question now more than ever, with different states and federal agencies taking vastly different approaches on every facet of the hemp CBD industry.

Interest in hemp is at an all-time high, and with an industry that has a potential to be worth $20 billion by 2022, it is easy to see why. If you are a hemp CBD business, have interest in the industry or are interested in the state and future of hemp CBD legality, please join us on February 21, 2019 at noon (PST) for the latest installment in our lunchtime webinar series entitled “West Coast Hemp CBD After the Farm Bill.”

In this hour-long session, Harris Bricken lawyers Daniel Shortt (Seattle, Washington), Nathalie Bougenies (Portland, Oregon), and Griffen Thorne (Los Angeles, California) will provide an in-depth look at changes in federal law and policy post Farm bill, as well as its impact on each of the three west coast states (Washington, Oregon, and California). Throughout the presentation our team will also discuss the status of laws and regulations in each state. Some of the topics we will cover include:

  • the future of hemp permitting;
  • Farm Bill implications for Internal Revenue Code section 280E;
  • banking for hemp CBD businesses;
  • intellectual property for hemp CBD businesses;
  • CBD in food, beverages, vape cartridges, oils, topicals, and other products; and
  • the Food and Drug Administration’s role in hemp CBD.

With moderator Hilary Bricken, our panel of attorneys will address audience questions throughout the presentation. Please register for the event here! Should you have any further questions, please feel free to reach us at firm@harrisbricken.com.

washington cannabis employment law

Please note that this event has been postponed until further notice.

Owning a cannabis business can feel like you’re drowning in various regulation compliances and not actually spending time with your business. The excess of rules and regulations levied by the Washington Liquor and Cannabis Board (WSLCB), cannabis-specific regulations, along with an array of state and federal employment laws and regulations can keep any business from blossoming to its fullest. At Harris Bricken we understand your struggles and aim to keep your business thriving.

If you are a WSLCB licensed cannabis business with employees, please join us at noon (PST) on January 29, 2019 for the second of our lunchtime employment law webinar series. Throughout the presentation, Harris Bricken attorney Megan Vaniman will lend her vast knowledge of employment law to ensure that your business is in compliance with Washington regulations. Topics will include:

  • Washington’s Sick Leave Laws
  • Washington’s Ban-the-Box Regulation
  • Washington’s Equal Pay Opportunity Act
  • The difference between independent contractors and employees

Moderated by fellow Harris Bricken attorney Robert McVay, Megan will also address any relevant audience questions throughout the presentation. Please register by clicking here. For any additional questions regarding the webinar, please contact firm@harrisbricken.com. We hope you can join us!

washington marijuana justice
We are glad to Washington opening up with pardons.

Today I’m attending the Washington State Cannabis Summit. This is the 5th Annual summit, but this year is particularly special due to a major announcement by Governor Jay Inslee. During the morning session, Gov. Inslee unveiled the Marijuana Justice Initiative. The Initiative will allow individuals to submit an online petition to Gov. Inslee requesting a pardon for certain marijuana convictions.

To be eligible for clemency under the Initiative, an individual’s conviction must meet the following criteria:

  • It must be an adult conviction for misdemeanor marijuana possession;
  • Prosecuted under Washington state law (RCW), not a local ordinance;
  • The conviction must have occurred between January 1, 1998 and December 5, 2012;
  • It must be the only conviction on a person’s criminal record.

Individuals who do not qualify under the initiative may seek clemency by filing a petition with the Clemency and Pardons Board. 

Gov. Inslee deserves credit here for using his pardon power to address some of the damage done by the war on drugs. The Governor’s office summarized this harm in its press release announcing the Initiative:

For decades, people have faced criminal prosecution for behavior that is no longer considered a crime in Washington. Inslee believes that forgiving these convictions will allow people to move on with their lives without these convictions causing additional burdens on people, their families, their employers and their communities. This is a small step, but one that moves us in the direction of correcting injustices that disproportionately affected communities of color. A successful pardon of a marijuana possession conviction can assist with barriers to housing, employment and education.”

Gov. Inslee’s office estimates that roughly 3,500 individuals will qualify for clemency under the Initiative.

Gov. Inslee made the announcement to a room full of Washington’s marijuana industry stakeholders. This includes marijuana business, owners, lawyers, accountants, regulators, and lawmakers. As the industry develops, it’s important that criminal justice issues remain in the forefront. This Initiative is a good start. Hopefully, in the future this Initiative can expand to encompass more than just 3,500 individuals. Kudos to Gov. Inslee for starting off 2019 with marijuana criminal justice reform.

wslcb finance marijuana cannabisAfter years of us banging the drum for the WSLCB to change its financier approval process, there is a glimmer of hope out there that the agency is willing to listen to reason. The WSLCB has issued a new interim policy, BIP-06-2018, that allows existing true parties of interest and financiers to get clearance for providing additional funds to licensed marijuana businesses concurrently with contributing the funds.

The problem was that the WSLCB has required pre-approval of any new funding contributed to or spent on behalf of a marijuana licensee. That includes additional funding coming from financiers and true parties of interest that had already been approved by the state. This cumbersome process could take months, and it was creating a significant compliance problem in the state.

In the crowded marijuana business market, companies have needed to run extremely tight margins to stay competitive. Tight margins mean that any bit of bad luck can cause a company to go temporarily into the red. If a company doesn’t have the cash reserves to handle operating expenses in that time, the owners must often dip into their own pockets and fund the difference. But if payroll is due next week, it doesn’t help much that the WSLCB will allow an owner to contribute additional funds three months later. Faced with an impossible decision, most owners flouted WSLCB rules and contributed the money anyway. The penalty if the WSLCB found out about that was license cancellation, but there wasn’t much of an alternative. Failure to make payroll is a death sentence for most businesses regardless.

Under BIP-06-2018, however, existing true parties of interest and financiers may now contribute additional funds to a licensed marijuana business before those funds are approved. To benefit from this policy, the true party of interest or financier must have already been approved by the WSLCB with respect to the marijuana license they are contributing to. They must also submit the application for approval of funds prior to making the contribution.

There is a different type of risk at play in this new regime, namely what happens if the WSLCB does not approve the funding that has already happened. In its policy notice, the WSLCB clarifies that it can cancel the marijuana license if it cannot verify the source of funds. Hopefully the WSLCB would also allow the business to return the funds if it had cash on hand, but that isn’t guaranteed. So any true party of interest or financier taking advantage of this policy would need to feel confident that the source of funds is verifiable through tax reporting or other documentation.

We complain a lot about WSLCB policies, so it is nice to see them move in the direction to make life easier for regulated businesses every now and then. Here’s hoping this interim policy sticks, and for more smart rules changes in 2019.

In a move straight out of the 1984 classic “Repo Man,” Washington regulators are making marijuana edibles really, really boring.

Earlier this year, we wrote about the Washington State Liquor and Cannabis Board’s (WSLCB) decision to effectively ban marijuana-infused candy. The industry pushed back and the WSLCB reevaluated its stance. December 12, the WSLCB issued a new interim policy to “further clarify the procedures and processes for packaging, labeling, and product decisions for marijuana infused edible products.” It lists the following requirements that apply to all marijuana infused edible products and their package and labeling:

  • Only colors and shapes from an approved list on the WSLCB website can be used.
  • A white or cream background with brown or black lettering and up to three accent colors from the approved color list will be provided on the WSLCB website.
  • A percentage or gradient of an approved color counts as one color.
  • A grey or black background with brown or white lettering and up to three accent colors from the approved color list will be provided on the WSLCB website. A percentage or gradient of an approved color counts as one color.
  • A tan or brown background with black or white lettering and up to three accent colors from the approved color list provided on the WSLCB website. A percentage or gradient of an approved color counts as one color.
  • A full color photo or photo in the chosen accent color of the product is allowed.
  • Packaging with a clear window is permitted. Company logos are permitted. Examples of allowable logo displays are available on the WSLCB website.
Exciting stuff. . .

The public can request to add approved color or shapes by submitting a request to labelapproval@LCB.wa.gov. The WSLCB will consider requests on a quarterly basis starting in March 2019. The WSLCB will also further limit the use of marijuana leaves on packaging, prohibiting cartoon leaves as well as marijuana leaves that resemble other brands.

According to a webinar provided by the WSLCB, it’s possible that licensees won’t be required to comply with this interim policy until January 2020. This new policy is going to seriously impact producers and processors, as many companies will have to completely revamp their entire product lines. Though the WSLCB may have good intentions, this additional prohibition comes on the heels of an already massive labeling overhaul and a policy prohibiting any infused-beverage resembling alcohol.

We expect that brands will also have trouble differentiating themselves using only 16 approved colors. Fun stuff.

What’s a Washington beverage processor to do?

The Washington State Liquor and Cannabis Board (WSLCB) is creating a real niche in the beverage product design industry through some of its most recent policy pronouncements. As has always been the case, edible (and drinkable) marijuana products are regulated so that they are not appealing to children. There are a host of old and new policies and rules that focus on avoiding marketing marijuana to kids, some of which are explicit (new policy mandating dull colors), and some of which are subjective (packages and labels cannot be designed in a manner that is “especially appealing to children.”).

But in one of a new set of policies that the WSLCB has issued recently, it has also sought to avoid packaging and labeling reminiscent of products made for adults — alcohol. Under BIP-07-2018, marijuana-infused products must not “Mimic, imply, represent or contain any statement, depiction, illustration, design, brand, or name of a product containing alcohol.”

Further, the WSLCB claims that if a product looks like alcohol, a licensee can’t get its product approved even if it includes a disclaimer on the packaging that the product does not contain alcohol. Even though this is a recent development as a written policy, we know that the WSLCB has been treating this as actual policy for a while. We have seen products turned away because of their bottle shape, the typeface on the label, and the ingredient list.

We have so many questions about this policy. Why? Are there large numbers of people going to marijuana retail stores, buying a product because they think it has alcohol, and going home to be disappointed that it doesn’t? Is this something that the alcohol lobby wants the LCB to do? To what end?

In trying to come up with some reason that this policy makes sense, the most charitable interpretation is that the WSLCB is trying to protect someone who lives with other people and reaches into the fridge to get a beer, only to find later that the beer was in fact marijuana. But even that case doesn’t stand up to scrutiny, as it could apply to marijuana beverages in any sort of container. There are only so many types of bottles and labels in the world, and all of them could conceivably be used for drinks that are either marijuana-infused or not. There’s nothing special about a beer bottle that would make it especially more confusing than a plastic soda bottle.

More importantly, this policy seems to contradict the WSLCB’s policy that marijuana beverages should not be marketed to children. I remember being a kid and being nervous when someone handed me a dark glass bottle of root beer for the first time. I knew that I wasn’t supposed to drink alcohol, and I had to triple check, that there wasn’t any in there because the color and shape of the bottle communicated to me that the drink was for adults-only. The WSLCB seems to be taking that tool away from marijuana beverage processors.

Now the WSLCB seems to be telling people that they can’t communicate with their products that something is specifically for children or specifically for adults. This is where smart product designers come in. Marijuana drink makers in Washington must find some type of middle ground that communicates neither. We’re not sure exactly how they can do that, but we wish them the best.

Earlier this year, the Washington Legislature passed House Bill 2334 (the “Bill”) into law. The Bill allows licensed marijuana producers and processors to use cannabidiol (CBD) from a source not licensed by the Washington State Liquor and Cannabis Board (LCB). The Bill defines a “CBD product” as “any product containing or consisting of cannabidiol” and would permit the use of CBD products from unlicensed sources so long as the CBD product has a THC level of 0.3 percent or less on a dry weight basis and has been lab tested. The Bill essentially allows Washington processors to add CBD from industrial hemp derived in other states into Washington marijuana products.

Washington’s regulated cannabis market is a closed loop that works on the principle that no marijuana comes in and none goes out. Everything sold in a licensed retail store is grown by licensed producer and processed into products like oils and edible by a licensed processor.

cannabis washington lcb marijuana
Start ramping up ahead of December 1.

On October 31, the LCB enacted new regulations in light of the Bill. These new rules impose some additional requirements and restrictions with regards to CBD derived from sources outside of Washington’s framework. The LCB will not allow the addition of CBD to useable marijuana flower. That means CBD additives will be limited to edibles, oils, tinctures, and other products that are derived from marijuana. Licensees will have to enter CBD products into the LCB’s traceability system, keep the records up-to-date, and the additives labeled. And licensees must also keep CBD additives quarantined from other marijuana until the CBD additives have gone through lab testing.

The LCB already requires that all marijuana and marijuana products undergo lab testing. WAC 314-55-102. CBD additives will go through additional testing under these new regulations. CBD additives that do not pass testing cannot be added to marijuana products.

In addition to the THC threshold, outside CBD must be tested for contaminants and toxins by the same accredited labs that test other marijuana and marijuana products in Washington. Licensees must submit samples of CBD additives to accredited labs. The samples must be representative of the entire product and must be one percent of the product as packaged by the manufacturer but no less that two grams. The samples must be collected in a sanitary manner, meaning the person collecting the samples must wash her hands, wear gloves, and use sanitary utensils and storage devices. Samples must be labeled with an unique identifier number, the trade name of the lab receiving the sample, the license number and tradename of the licensee, the date the sample was collected and the weight of the sample.

The CBD additives must be tested for THC to ensure that the product contains less than 0.3 percent. The additives are also tested to determine/verify the levels of THC and CBD. CBD additives must be tested for pesticides, heavy metals, residual solvents, microbiological matter, and mycotoxin.

For any questions on these new rules, give us a call. The new rules take effect December 1, 2018.

LCB washington marijuana cannabis
Some LCB policies make hurdles tough to clear.

Regulatory challenges can be substantive or procedural. Substantive challenges include things like Washington’s ban on out of state ownership and its view that licensee royalty payment constitute profit-sharing. These types of rules and interpretations are challenging because, as a policy matter, businesses aren’t allowed to pursue certain strategies that they otherwise would. Procedural challenges, on the other hand, are challenges that arise in dealing with a regulatory agency. The Washington Liquor and Cannabis Board (LCB) requires that it approve of retail packaging for infused products before that packaging can be used, and the LCB also requires that a person submit a signed criminal history statement before that person can be a true party of interest in a licensed marijuana business. These types of procedural hurdles exist for a reason – the LCB requires them to pursue its legitimate goals of enforcing its substantive regulations.

But there is another type of procedural hurdle that arises in dealing with regulatory agencies (specifically the Washington LCB). These procedural hurldes present challenges to regulated businesses, but they have no relationship with the LCB’s enforcement of its regulatory goals. Here’s one example that has been frustrating us to no end recently: the Washington LCB will not process a change of ownership and a change of location for a marijuana license at the same time. Let’s say that an entrepreneur in Tacoma finds a perfect location for a marijuana retail store and leases that space. The entrepreneur can’t apply for a new license because the state isn’t accepting applications, so the entrepreneur has to find a marijuana retail license allotted to Tacoma on the market. Once the entrepreneur finds that business and negotiates a purchase, the entrepreneur has to make some tough choices.

Because the LCB will not process a change in location and a change of ownership request at the same time, buyers have to determine the order of applications. Both orders have drawbacks. If you apply for a location change first, you will have a marijuana retail store at your location within, hopefully, a few months. However, you run the risk that, in the intervening period, the business’s sellers that still own and control the business do something to put the business at risk. They could commit regulatory violations that risk license cancellation. They could take on business debt, putting the businesses assets at risk. The buyer would be powerless to stop these actions, because the LCB does not want to see any party exert control over a licensed business until that party has been approved by the LCB to do so.

If you instead apply for the ownership change first, you are less at risk of the bad acts of the selling party. Instead, you have to deal with getting a lease that would be in place for the time between when the ownership change is approved and the time when the new location is approved. The LCB wants to see landlord consent, and landlords often try to gouge buyers in this situation because they understand how much leverage they have. You also have to go through a sham process with the LCB when you do the ownership change application. The LCB asks for operating plan information, but you aren’t allowed to say that you don’t really plan on operating in the existing space, even if that is your plan. Instead, you are in a situation where you are just saying what you need to in order to get approved so that you can move on to the next step. LCB investigators understand this, but they still require the minimums so that they can check all the boxes off their checklists.

This type of procedural challenge is so frustrating because it isn’t tied to any policy. The LCB allows location changes, and it allows ownership changes. There is no reason that it shouldn’t be able to run both changes at the same time. But somewhere within the LCB archives, someone wrote down a policy that says investigators can’t do two things at once, and so far no one there is willing to do what it takes to change that policy. That policy has wasted enormous amounts of time and money and created enormous amounts of stress for parties on all sides, and it is part of why Washington has a reputation for being a hard state to do business. It invites actual regulatory violations, where people exert control over businesses that they haven’t been approved for, because the alternative can feel ridiculous.

For those of you with regulatory lobbyists out there, we encourage you to push the LCB on issues like this, in addition to substantive lobbying. There can and should be legitimate debate on whether businesses are allowed to sell marijuana-infused gummy bears. But for procedural challenges that have no basis in enforcing substantive rules, it’s important to keep pushing back. We want to see regulatory compliance, and the more logistically challenging the state makes it for businesses to comply with regulations, the more likely that businesses will ignore those regulations.