Marijuana growers in Washington state may be too good at their jobs. The state’s retail pot industry is awash in cannabis, meaning some growers are making less money.
That glut in supply has stripped away the control over price once held by Washington’s marijuana growers. Now the state’s retail stores have the upper hand.
“It’s turned about 180 degrees in that regard,” said Brian Smith, a spokesman for the Washington State Liquor Control Board, the agency that regulates the industry.
Just a few months ago, retail pot shops were struggling to find enough cannabis to stay open – or in some cases even to find enough product to open at all. At the time, some growers boasted of receiving dozens of calls, letters and emails every week from retail pot shops desperate for product.
With so little marijuana available, Washington pot farmers who had product could charge steep prices and retailers who could afford it would pay.
Smith said his agency wasn’t surprised by the high prices during the retail industry’s early days. “We said all along that it was just a matter of time until the fall harvest came and there was going to be plenty of marijuana,” he said.
And sure enough that’s what has happened.
“Just like you’d have a cherry harvest or an apple harvest, harvest time came for the big grows in eastern Washington and it filled the market,” he said. “We’ve got supply that’s definitely meeting demand now and it’s driven prices down.”
Pot Prices Drop
Back in July, Smith said, customers we’re paying roughly $30 for a gram of marijuana. Now, he said, prices are about half that.
Smith said once the industry stabilizes, the state’s Liquor Control Board would like to see prices hover around $12 per gram.
Industry analysts say this shift in market control away from growers is likely to be the new normal.
Robert McVay is an attorney with the Canna Law Group and is based in Seattle.
“When things were first getting started retailers were basically buying product from any avenue, any producer that walked in their doors, just because they wanted to have something on the shelves,” McVay said. “Now that there’s sufficient product to consistently fill the shelves, you’re going to start to see more brand loyalty.”
The way the state set up its retail industry has given pot shop owners a further advantage, said McVay.
For now, the state has limited the total number of retail pot shops to 334. So far about 110 have been licensed, but only 98 are reporting sales, according to officials with the state.
But, McVay explained, Washington state didn’t limit the number of growers or processors in the same way. Rather, he said, producers just had to have their applications turned in between November and December 2013.
“They were only limited by the factor that we had a timeline you had to apply for the business,” McVay said. “So you can have 1000 producers in the state and only 334 retailers. It’s easier for the retailers to have power in that negotiation.”
Some growers said they’re frustrated with the way the state is managing the industry. But retailers argue the lower prices will be key to growing the retail side of Washington’s legal marijuana industry.
“It’s a win for the customers,” said Ramsey Hamide, who owns Main Street Marijuana in Vancouver, Washington. “It’s only going to bring more and more people through the doors.”
Even when he was paying “the crazy prices” a few months back, Hamide said he knew things would eventually level out.
“We knew there would be a day of reckoning for the processors,” he said. “A simple running of the numbers would tell you that we only need about 100 processors to supply the entire system as it stands … Now that we have 300 or 400 [producers and processors], something’s got to give and that’s going to be lower prices.”
Roller coaster prices and uncertainty about demand are to be expected in a new industry, said Taylor West, the deputy director of the National Cannabis Industry Association, the only national trade group that represents businesses in the legal pot industry.
“There will be a bit of a shakeout depending on whether a business has the cash reserves to ride out the ups and downs of this early market,” she said.
Compared to Colorado, West said Washington has had a difficult time.
“They (Washington) did not have any regulatory structure in place prior to adult use legalization,” she said. “We may look six months from now at Washington and see that things have really stabilized and that they’ve got some of the kinks worked out.”
The Outlook For Oregon
As Washington’s retail pot industry continues to work through its growing pains, many are now looking to Oregon as it gears up for its own industry.
“Oregon’s real advantage is that it’s seen what’s happened in Washington and it’s seen what’s happened in Colorado and it’s going to be able to improve on the mistakes and hiccups that both of those states have seen,” the Canna Law Groups’ McVay said.
For example, he said, there were licensing delays in Washington and not enough enforcement of regulations in Colorado.
“Oregon’s law was written to give a good amount of flexibility to the liquor control commission so we’re hoping that they come out with regulations that makes it reasonable and easy for business to operate,” he said.
While it becomes legal to posses marijuana in Oregon on July 1, McVay said it’s unlikely that retail stores will open until 2016.