ESSB 5403: Shaping the Rules for Retail Management Agreements
Passing a bill is only part of the policymaking process. Once legislation becomes law, state agencies often have to translate it into detailed rules that determine how it will actually work in practice.
That process is underway now for ESSB 5403, legislation passed in 2025 addressing financial interests, management agreements, and relationships between cannabis retail businesses. The Cannabis Alliance recently submitted written comments on the Washington State Liquor and Cannabis Board's (LCB) latest draft.
Where are we in the process?
The ESSB 5403 rulemaking is currently in the CR-101, or preproposal, stage. The LCB filed its CR-101 on July 23, 2025, and after more than a year of development, stakeholder meetings, and successive drafts, released its most recent revised draft on July 31, 2026. Written stakeholder feedback was due August 28.
Generally, Washington rulemaking moves from the CR-101 stage, when an agency develops a rule and gathers information, to a CR-102, when the agency files formally proposed rule language and opens a formal public-comment period, including an opportunity for a public hearing. After considering that record, the agency can move toward adoption of final rules through the CR-103 process.
The language is still a draft. The informal comment window on the July 31 version has closed, but there will be additional opportunities for public participation before these rules become final.
Why public comment matters
Industry feedback helps agencies understand how proposed rules will work in practice. Draft language can create compliance questions, conflict with other requirements, or affect different types of businesses in different ways. Public comment provides an opportunity to identify those issues before the rules are finalized.
Public participation gives regulators access to that perspective. It also creates a public record — documenting concerns and giving the agency an opportunity to address them before draft language becomes final.
Our comments on the ESSB 5403 draft raise two issues that illustrate why that matters.
Who counts as a true party of interest?
Under Washington's cannabis rules, a "true party of interest" is someone the LCB treats as having a financial interest in, or control over, a licensed business. That status carries real consequences, including disclosure and vetting requirements and limits on how many licenses a person can be connected to.
The current draft treats some third-party service relationships differently depending on how they are categorized. A consultant paid a flat or hourly fee can qualify for an exclusion from true-party-of-interest and financial-interest status only if the consultant works with no more than five retail, three producer, or three processor licenses. Other vendors and service providers performing potentially comparable work are not subject to the same numerical cap, provided other conditions are met.
That raises a practical question: why should comparable services be treated differently based on how the relationship is labeled?
It also creates uncertainty for ordinary professional relationships. Our comments ask the LCB to make clear that accountants, attorneys, consultants, and other service providers do not become true parties of interest simply because of their professional title or the general category of services they provide. The better question is whether the relationship actually gives the third party the financial interest or control that the statute is intended to regulate.
These are exactly the kinds of issues that are easier to resolve while rules are still being written than after businesses are expected to comply with them.
A bigger question: volume pricing
Our comments also raise a broader concern about volume pricing — provisions that would allow wholesale cannabis pricing to vary based on the quantity purchased.
That would be a significant change. Washington's rules have long treated discounts and rebates between licensees as prohibited practices under WAC 314-55-018. The draft would create an exception to that longstanding prohibition within a rulemaking convened to implement a statute addressing management agreements and financial interests.
We question whether those provisions belong in this rulemaking at all. Introducing a new volume-pricing framework raises separate policy, competition, and legal questions that deserve careful consideration on their own terms.
We are also concerned about how volume-based pricing could affect Washington's market structure. A multi-store retailer may be able to aggregate purchasing across several locations in ways that an independent retailer cannot, potentially creating a competitive advantage even when the same pricing terms are technically available to everyone.
The Cannabis Alliance has asked the LCB to remove the volume-pricing provisions from this rulemaking and, if the Board wishes to pursue the policy, take it up through a separate rulemaking where the issue can receive focused analysis and stakeholder input.
Showing up while the rules are being written
Advocacy doesn't end when a bill passes.
Some of the most consequential policy decisions happen afterward, when statutory language is translated into the regulations businesses must actually follow. That is why The Cannabis Alliance participates throughout the regulatory process — reviewing drafts, attending stakeholder meetings, identifying unintended consequences, and putting substantive recommendations into the public record.
Our goal is not to oppose regulation. Good regulation gives licensees clear expectations, gives regulators workable enforcement standards, and carries out the policy choices the Legislature made without creating unnecessary uncertainty or unintended competitive consequences. Getting there requires participation from the people who understand how Washington's cannabis market actually operates.
The next major step is expected to be the CR-102 stage, when the LCB will publish formally proposed rules and open another opportunity for public participation. We will continue tracking the rulemaking and will let members and stakeholders know when the formal comment period and public hearing are announced.
Read The Cannabis Alliance's full ESSB 5403 rulemaking comments