WSR 24-16-063

PROPOSED RULES

LIQUOR AND CANNABIS

BOARD

[Filed July 31, 2024, 10:58 a.m.]

Original Notice.

Preproposal statement of inquiry was filed as WSR 24-11-035.

Title of Rule and Other Identifying Information: Title 314 WAC; WAC 314-55-115 What method of payment can a cannabis licensee use to purchase cannabis?

The proposed rule language amends WAC 314-55-115 to allow cannabis licensees to purchase cannabis from other licensees by mailing checks under the same conditions applicable to other payment methods identified in WAC 314-55-115. The check must be sent no later than one business day post delivery of cannabis, both parties must retain records, the sale must be initiated by an irrevocable invoice, and the check must be deposited no later than five business days post delivery of cannabis.

Hearing Location(s): On September 11, 2024, at 10:00 a.m. All public board activity will be held in a "hybrid" environment. This means that the public will have options for in-person or virtual attendance. The Boardroom at the headquarters building in Olympia, 1025 Union Avenue, Olympia, WA 98504, will be open for in-person attendance. The public may also login using a computer or device, or call in using a phone, to listen to the meeting through the Microsoft Teams application. The public may provide verbal comments during the specified public comment and rules hearing segments. TVW also regularly airs these meetings. Please note that although the boardroom will be staffed during a meeting, board members and liquor and cannabis board (LCB) participants may continue to appear virtually. For more information about board meetings, please visit https://lcb.wa.gov/Boardmeetings/Board_meetings.

Date of Intended Adoption: No earlier than September 25, 2024.

Submit Written Comments to: Daniel Jacobs, Rules and Policy Coordinator, P.O. Box 48030, Olympia, WA 98504-3080, email rules@lcb.wa.gov, fax 360-704-5027, beginning July 31, 2024, 12:00 p.m., by September 11, 2024, 12:00 p.m.

Assistance for Persons with Disabilities: Contact Anita Bingham, ADA coordinator, human resources, phone 360-664-1739, fax 360-664-9689, TTY 711 or 1-800-833-6388, email anita.bingham@lcb.wa.gov, by September 4, 2024.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: This rule making is in response to a petition LCB accepted in March 2023 requesting to amend WAC 314-55-115 to allow cannabis licensees to purchase cannabis from other licensees using checks mailed up to three days after delivery of cannabis.

Because the current rule language provides no explanation at all for how payment via check should be done, language was borrowed from the existing descriptions of payment methods, specifically credit/debit cards, electronic fund transfers (EFT) and transactions using a money transmitter.

The requirement for an irrevocable invoice before or at the time of delivery and the record-keeping requirement are borrowed from the other payment methods, described in the table below.

The main variation from the existing regulatory framework is due to the unique nature of checks and the possibility of mail for delivery. While the other payment methods require that payment be initiated no later than the first business day, for checks, this means mailing the check.

Similarly, the transaction must be completed no later than five business days following delivery of cannabis for the other payment methods. Here, the analogous point of completion for payment via check would be the depositing of the check, and that is the language used in the proposed rule.

While the comment raised concern about nonsufficient funds (NSF) checks, this is already addressed in existing subsection (6), which states that transactions reported as NSF that are not corrected by the 3:00 p.m. on the business day following the NSF report are impermissible extensions of credit and are subject to penalties identified in WAC 314-55-523.

Lastly, to avoid any confusion, a clarifying section defines "delivery" to refer to delivery of cannabis in this rule.

Reasons Supporting Proposal: The reasons supporting these proposed rules, in addition to that described above, are identified in the table below, describing the proposed changes to WAC 314-55-115:

Statutory Authority for Adoption: RCW 69.50.342, 69.50.345.

Rule is not necessitated by federal law, federal or state court decision.

Name of Proponent: LCB, governmental.

Name of Agency Personnel Responsible for Drafting: Daniel Jacobs, Rules and Policy Coordinator, 1025 Union Avenue, Olympia, WA 98504, 360-480-1238; Implementation: Becky Smith, Director of Licensing, 1025 Union Avenue, Olympia, WA 98504, 360-664-1753; and Enforcement: Chandra Wax, Director of Enforcement and Education, 1025 Union Avenue, Olympia, WA 98504, 360-664-1726.

A school district fiscal impact statement is not required under RCW 28A.305.135.

A cost-benefit analysis is not required under RCW 34.05.328. The proposed amended rules do not qualify as a type of rule requiring a cost-benefit analysis under RCW 34.05.328(5). LCB is not a listed agency under RCW 34.05.328 (5)(a)(i), so the cost-benefit analysis requirements in RCW 34.05.328 are not applicable to the proposed rules unless voluntarily applied or made applicable by the joint administrative rules review committee under RCW 34.05.328 (5)(a)(ii).

Scope of exemption for rule proposal from Regulatory Fairness Act requirements:

Is not exempt.

The proposed rule does not impose more-than-minor costs on businesses. Following is a summary of the agency's analysis showing how costs were calculated. Agencies are required to consider costs imposed on business and costs associated with compliance with proposed rules. Agencies are not required under chapter 19.85 RCW to consider indirect costs not associated with compliance. Here, LCB considered potential administrative costs that a licensee may incur complying with the proposed rules.

Using the North American Industry Classification System (NAICS) code 111419 for cannabis grown under cover, the US Census NAICS describes this code for "This U.S. industry comprises establishments primarily engaged in growing food crops (except mushrooms) under glass or protective cover." The US Census NAICS code description at https://www.census.gov/naics/?input=cannabis&year=2022&details=111419 identifies cannabis grown under cover as an example of a business that uses this code.

Using NAICS code 111918 for cannabis grown in an open field, the US Census NAICS describes this code for "This U.S. industry comprises establishments primarily engaged in one of the following: (1) Growing crops (except oilseeds and/or grains; vegetables and/or melons; fruits and/or tree nuts; greenhouse, nursery, and/or floriculture products; tobacco; cotton; sugarcane; hay; sugar beets; or peanuts); (2) growing a combination of crops (except a combination of oilseed(s) and grain(s); and a combination of fruit(s) and tree nut(s)) with no one crop or family of crops accounting for one-half of the establishment's agricultural production (i.e., value of crops for market); or (3) gathering tea or maple sap." The US Census NAICS code description at https://www.census.gov/naics/?input=cannabis&year=2022&details=111998 identifies cannabis grown in an open field as an example of a business that uses this code.

Using NAICS code 424590 for cannabis merchant wholesalers, the US Census NAICS describes this code for "This industry comprises establishments primarily engaged in the merchant wholesale distribution of farm products (except grain and field beans, livestock, raw milk, live poultry, and fresh fruits and vegetables)." The US Census NAICS code description at https://www.census.gov/naics/?input=cannabis&year=2022&details=424590 identifies cannabis merchant wholesalers, as an example of a business that uses this code.

Using NAICS code 459991 for cannabis retailers, the US Census NAICS describes this code for "This U.S. industry comprises establishments primarily engaged in retailing cigarettes, electronic cigarettes, cigars, tobacco, pipes, and other smokers' supplies." The US Census NAICS code description at https://www.census.gov/naics/?input=marijuana&year=2022&details=459991 identifies marijuana stores, medical or recreational, as an example of a business that uses this code.

LCB applied a default estimated compliance cost when analyzing whether the rules would have a disproportionate impact on small businesses as defined in RCW 19.85.020(3). This reflects a very generous estimate of $500.00 for every cannabis licensee to familiarize themselves with the new recordkeeping requirements for paying for cannabis using a check.

Per RCW 19.85.020(2), a minor cost means a cost per business that is less than three-tenths of one percent of annual revenue or income, or $100, whichever is greater, or one percent of annual payroll.

According to department of revenue data from 2023, the total gross business income for NAICS code 459991 was $647,617,610 for 493 businesses. That produces an average annual gross business income of $1,313,625.98. Three-tenths of one percent of $1,313,625.98 is $3,940.877, rounding up to $3,940.88.

The remainder of the date [data] is provided by reference to the minor-cost threshold calculator provided by the office of regulatory innovation and assistance available at https://www.oria.wa.gov/Portals/_oria/VersionedDocuments/RFA/Regulatory_Fairness_Act/Minor-Cost-Threshold-Calculator.xlsx.

As the table demonstrates, the estimated cost of compliance does not exceed the threshold for any of the potential NAICS codes applicable to cannabis licensees. Therefore, implementation of this amended rule is not anticipated to result in more-than-minor costs on businesses as defined in RCW 19.85.020(2).

DOR - Washington state department of revenue.

ESD - Employment security department Washington state.

DOR data available at https://apps.dor.wa.gov/ResearchStats/Content/GrossBusinessIncome/Results.aspx?Year=2023Q4,2023Q3,2023Q2,2023Q1,&Code1=450000&Code2=460000&Sumby=n6&SicNaics=2&Format=HTML.

*Average annual payroll data was unavailable due to confidentiality with other state agency data.

A copy of the detailed cost calculations may be obtained by contacting Daniel Jacobs, Rules and Policy Coordinator, P.O. Box 43080, Olympia, WA 98504-3080, phone 360-480-1238, fax 360-704-5027, email rules@lcb.wa.gov.

July 31, 2024

David Postman

Chair

OTS-5457.2