September 4, 2019

Washington State Liquor and Cannabis Board Meetings Open to New Approaches to Manage Supply Chain


Updates on a recent meeting by the Washington State Liquor and Cannabis Board (LCB) Traceability Advisory Committee were provided by committee member Gregory Foster at Cannabis Observer. Foster’s account outlines the issues surrounding July’s software update to Akerna’s (formerly MJ Freeway’s) Leaf Data Systems. Additionally, Foster re-emphasized that, “business-to-business commerce in the regulated marketplace was obstructed in many cases,” and, “supply side producers and processors lost business.”

Our observations of wholesale prices in Washington State at the time of the problematic Leaf Data Systems software update do not show deviations from existing trends. In previous discussions with market participants in the wake of prior issues with Leaf Data Systems early in 2018, they stated that they did not believe problems transferring product as a result of software glitches actually resulted in buyers and sellers altering wholesale price arrangements, except perhaps in a few isolated cases.

Additionally, Foster’s report on the LCB’s Traceability Advisory Committee meeting states, “Some retailers couldn’t receive scheduled deliveries, but stockpiled sufficient product in advance,” of the software update. If such behavior was widespread, it is possible that increased demand contributed to upward pressure on wholesale prices in late June and early July.

The Observer’s reporting on the meeting also noted that no representatives from Akerna were present, a significant change from prior meetings. According to the Observer, “The future of Leaf Data Systems in Washington State and the LCB’s relationship with MJ Freeway appeared increasingly uncertain.” At the moment, Akerna / MJ Freeway’s contract with the state has been renewed, but it was also amended to limit the scope of work to bringing the current version of the software to full functionality, as opposed to providing further updates in the future. In addition to facing the possibility of another change in traceability software providers, the Observer pointed out that LCB members appear “open to new approaches to regulating Washington State’s cannabis supply chain.”

A separate LCB Board Caucus that took place in early August was also recounted in Cannabis Observer, this time by M. Bailey Hirschburg. The caucus included discussion by board members of their experiences at the annual meeting of the Washington Sungrowers Industry Association (WSIA). According to Hirschburg’s account, LCB members discussed a “class of business people who style themselves as ‘brokers,’” who “arrange sales for [producers and processors] with a variety of contractual agreements.”

Notably, such brokers are not licensed entities and are apparently participating in the state’s legal market without oversight. LCB members reportedly described their actions as “predatory” and characterized some of the contract language that they viewed as “disturbing.” However, based on the account of the caucus published in the Observer, it does not appear as if regulators will attempt to intervene in such activities at this time.

The LCB Caucus also discussed testimony from “two larger growers,” who stated essentially that the Seattle retail market was the only game in town in terms of being able to market their product. As we have noted in previous Premium Weekly Reports, licensed retailers can be scarce in parts of Washington, particularly the eastern half of the state, where local rules prohibit or limit cannabis businesses from setting up shop. However, it should also be acknowledged that such a situation is not dramatically different from the markets of Colorado or Oregon, where most commerce takes place in the greater Denver and Portland areas, respectively.

Furthermore, at the LCB’s August 6 Caucus, the Observer quoted board member Russ Hauge as stating that tagging individual plants may not be necessary to account for production and inventory.

Other updates from recent LCB meetings included more information on the timeline for the ongoing process of formulating and implementing quality assurance and safety testing of cannabis products. At the August 6 Caucus the LCB said that the next step of the rulemaking process – the initial drafting of proposed regulations – would likely not be forthcoming until at least early November. Consequently, the actual imposition of new testing requirements does not appear as if it will take place until the middle or latter portion of 2020, at the earliest.