Can the Washington State Liquor and Cannabis Board Grant a Printing Monopoly?

Columns - Guest Column

Controversy continues over the newly proposed ‘red hand’ warning label on edibles.

October 3, 2016

On Aug.10, the Washington State Liquor and Cannabis Board (WSLCB) unveiled a set of rules mandating a new graphic warning label for all cannabis edibles. Forbes magazine dubbed the image “Mr. Hand,” in counterpoint to the hapless Mr. Yuk symbol that was rejected by the WSLCB earlier this year.

Along with the text of the new rules, the WSLCB issued its “Small Business Economic Impact Statement” and “Issue Paper,” which offer some commentary and explanations for the rules. In essence, the rules provide that a specified warning label be applied to all cannabis edibles. The particular label was initially proposed, designed, actively promoted and prudently trademarked by the Washington Poison Center (WPC), a private, non-profit organization. The WPC is the same organization that in 2015-2016 led the unsuccessful attempt to mandate Mr. Yuk labels on all cannabis edibles. (Mr. Yuk is featured prominently on the WPC logo.)

The WSLCB rejected Mr. Yuk in February, but the WPC has returned with a new proposal — the same as the old proposal, but this time with “Mr. Hand” as the attention-seeking image on the warning label.

There are many reasons to oppose the concept of a warning label like “Mr. Hand,” and these were explained in the petition of the Cannabis Farmers Council to the WSLCB, which at press time had garnered 140 signatures believed to represent more than 100 licensees. But beyond those reasons, the official text of the rules reveals a peculiar and objectionable arrangement whereby the WSLCB appoints a private, sole-source supplier from whom some processors will be required to purchase warning label stickers, in effect creating a state-sanctioned monopoly.

Under the pending rules, processors who choose to place the “Mr. Hand” label on their packaging as a separate sticker must purchase those stickers directly from the WPC. Processors who incorporate “Mr. Hand” into their own labels are free to download the print-ready image from the WPC website and may source the printed labels on the open market. No explanation is offered for this distinction.

For this and other reasons, the rules under consideration are highly irregular, possibly unlawful and unjustifiable. (In this regard, these rules are similar to the unlamented WSLCB rules that previously provided for mandatory destruction of crop inventory for even minor administrative violations. Those rules were repealed from the Washington Administrative Code (WAC) once their doubtful legality was brought to the WSLCB’s attention.)

No technical justification exists for requiring the stickers to be purchased from the WPC (which will doubtless outsource the printing). The “Mr. Hand” label design is simple, and no special printing equipment is required, so it can be printed from any quality printer.

In bulk, “Mr. Hand” stickers can be sourced quickly on the web at a cost of less than half of what the WPC estimates it will charge per 1,000 stickers.

Make no mistake; there is money in those stickers.

So the only apparent reason for (and the most obvious effect of) allowing the WPC to act as the middleman for sticker purchases is to create a revenue stream for the WPC. In effect (and possibly by contract), the WPC is collecting royalties for the use of its mark.

Has such an arrangement ever been countenanced in the WAC? The WSLCB follows a rule-making process that culminates in the publication of rules in the WAC. Under the suggested rules, the WPC would be enshrined in the WAC, together with its monopoly over the warning-label printing business. Is it naive to ask whether the creation of a monopoly by appointment is common? Or lawful?

From a brutally cynical perspective, the WPC's motives may be called into question. It has been pushing for this self-aggrandizing policy for at least a year, yet it has never before seen the need to mandate a trademarked warning label for any other household substances, including actual poisons and potentially toxic consumables that do cause deaths in the home every year. Nor has it announced a broad campaign to expand “Mr. Hand's” reach to other product types (although it has expressed a hope that it can expand the reach of “Mr. Hand” to other states that have legalized cannabis).

In the worst light, the proposal can be seen as a brazen money-grab by the WPC, taking advantage of a vulnerable, new industry still struggling to gain full public acceptance.

As a wise friend once said, “I may not know constitutionality or the law, but I know wrong.” And the appointment of a private, sole-source supplier of mandatory labels by a state agency is just plain wrong. For that reason alone, the WSLCB would be well-advised to withdraw the proposed rules, which really never made sense to begin with.

About the Author: Eugene Flynn is a Managing Member of Canna Herb Farms LLC, a Tier-2 producer/processor in Stevens County, Eastern Washington. In addition to handling compliance and business development for Canna Herb Farms, he sits on the Cannabis Farmers Council Executive Board. He is a retired international lawyer, with a recognized expertise in cross-border business transactions and direct foreign investment. His experience includes over 20 years as a resident legal advisor in Asia, as well as stints with major law firms in New York, Los Angeles, and San Francisco.