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The text of this article was originally published in the June 2019 edition of the Argent Communications Group’s Cannabis Law and Regulation Reporter. It is reprinted here with permission.

WASHINGTON SENATE BILL LOOKS TO EDUCATION AND COMPLIANCE OVER PUNISHMENT FOR CANNABIS RETAILERS WHO RUN AFOUL OF STATE’S REGULATORY STRUCTURE

Compliance with Washington State’s regulatory structure has been challenging for cannabis licensees. Since legalization, the Washington State Liquor and Cannabis Board’s (LCB) policies have been more stick than carrot. Violations of the Washington Administrative Code (WAC) have leaned towards heavy fines and revocation of licenses over guidance and education. Even temporary suspension of a license or assessment of monetary penalties can be a death knell for a cannabis business. This “enforcement first” approach has led to friction between the LCB and

lawmakers, not to mention the licensees themselves. Washington State’s Senate Bill 5318 (SB 5318) hopes to remedy these issues by changing the way that the LCB treats cannabis licensees who may not be in compliance with regulatory requirements. SB 5318 delineates how the LCB must: “. . .adopt rules to perfect and expand existing programs for compliance education for licensed marijuana businesses and their employees.” 5318- S.E. SBR FBR 19, 2.

In an “enforcement first” climate, licensee mistakes are uniformly approached. Little gradation exists between the severity of errors and concepts of “good faith” and “bad faith” are mostly irrelevant. This bill puts focus on mitigating and aggravating factors. Sen- ate Bill 5318 underscores the notion that lawmakers prefer education and guidance towards compliance over harsh punishment for cannabis licensees.

 

Senate Bill 5318

 

Senate Bill 5318 was enrolled by the 66th Legislature on April 23, 2018.

 

Notices of Correction

 

SB 5318 creates a process to issue a “notice of correction” over a civil penalty. These notices serve as both an educational opportunity as well as put the licensee on notice that they are out of regulatory compliance. A notice of correction has several components: a description of:

. . .the noncompliant condition, the relevant text of the law or rule, a statement of what is required to achieve compliance, the date by which compliance must be achieved, notice of how to contact any technical assistance services, and notice of when, where, and to whom a request to extend the time to achieve compliance for good cause may be filed with the LCB. 5318-S.E. SBR FBR 19, 2.

 

Notices of correction are not formal or appealable but do appear on public records. Notices of correction are set to be a standard “first step” for license violations outside of a few notable exceptions. Most importantly, the LCB will not issue a notice of correction when it can prove through a preponderance of the evidence that the licensee is: 1) illegally selling marijuana (either across state lines or via the local illicit market); 2) selling marijuana products to minors; 3) diverting revenues to problematic parties (criminal organizations or individuals not qualified to hold a marijuana license due to criminal history requirements); 4) committing non-marijuana related crimes; 5) or knowingly lying about any of these violations. Licensees can also be penalized without a notice of correction when they have “previously been given notice of, or been subject to, an enforcement action for the same or similar violation of the same statute or rule” or by failing to address an issue by the date set out in a previous notice of correction. 5318-S.E. SBR FBR 19, 2.

 

Enforcement and Punishment Procedures

 

A single violation can no longer result in license cancelation unless the LCB can prove by clear, cogent, and convincing evidence that the violation was caused by intentional or grossly negligent action/ inaction involving one of the above-enumerated public-safety violations. For other violations, the licensee must have committed at least four violations within the past two years. As applied, violations occurring before April 30, 2017 are no longer grounds for denial, suspension, non-renewal, or cancellation of a license unless they are proven to fall within one of the enumerated major public-safety violations.

SB 5318 encourages licensees to develop educational programs for their employees. Specifically, it requires the LCB to give “substantial consideration” to mitigating any penalty originating from employee conduct if that employee has had adequate training. Establishment of a compliance program designed to prevent the violation (as well as not enabling or ignoring the violation) is a common-sense step that licensees can now take to provide one more layer of protection against being penalized by the LCB.

Finally, SB 5318 enables administrative judges to consider mitigating and aggravating circumstances in cases involving licensees. It further allows for these judges to deviate from prescribed penalties. A heavier focus on settlement conferences and agreements also means that the LCB will give substantial weight to any agreements made between licensees and LCB agents.

 

Conclusion and Implications

 

Senate Bill 5318 makes clear the Washington State Legislature’s intention that the Washington State’s Liquor and Cannabis Board be predominantly a guiding, educating entity, not a punitive one. The clearer system for correcting procedural violations without directly penalizing licensees highlights the difference between run-of-the-mill mistakes and intentional commission of crimes that threaten the public interest. SB 5318 lets cannabis licensees focus on conforming to both the spirit and letter of the law while LCB agents and administrative judges can make individualized decisions that better guide licensees and protect the interests of Washington State citizens.

Senate Bill 5318’s final language is available online at: http://lawfilesext.leg.wa.gov/ biennium/2019-20/Pdf/Bills/Senate%20Passed%20 Legislature/5318-S.PL.pdf

(Cassidy Patnoe, Mia Getlin)