Washington was one of two states to pass a law legalizing marijuana in late 2012, and now, after a year and a half of waiting, stores are ready to open up to the general public. We’ve all sat back and watched what has happened in Colorado, where legalization has had a successful start, banking the state millions in tax revenue and giving interested parties a place to spend their money besides the black market. Other states have been watching closely as well, looking for weaknesses in Colorado’s plan, and working with community groups to gather signatures to get their own bills on the ballot.
While Colorado has been enjoying the benefits of legalized retail sales for the past six months, Washington has been lagging behind, mostly due to the state’s regulatory commission put in charge of overseeing the process, the Liquor Control Board. But things are finally kicking off. The first legal marijuana store in Seattle, the state’s largest city, is set to open up. It’s been a long time coming, as most people have continued to make purchases from the state’s highly-unregulated medical marijuana dispensaries or from black market dealers. Cannabis was decriminalized back in 2012, but its sale was still not legal.
The path to legalization has been wildly different in Washington than it has in Colorado, and many don’t expect the whole process to go down as smoothly or be as lucrative. The law itself is structured differently in Washington, and a tax structure is being implemented that may not produce the best results for the state. Many in Washington are worried that the state’s Liquor Control Board is being far too overbearing on the new market, and as a result, many people will stick to the black and medical marketplaces.
The fact is, for many residents in Washington (Seattle in particular), if you wanted to find marijuana, you could. Decriminalization only made it more out in the open, and the city even holds an annual bash, dubbed Hempfest, which allows for people to come hang out and pass the pipe around. Last year, the Seattle Police Department even showed up and handed out bags of chips to attendees. Also, the city’s close proximity to British Columbia, a hotbed for top-quality cannabis, has made it a part of Washington culture to some extent.
The legalization of cannabis in Washington is a good thing, without a doubt. But in order to make it as successful as Colorado’s, Washington legislators might need to make some revisions.
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Washington’s law breaks the market up into three separate categories for businesses: producers, processors and retailers (although producers can also act as processors). Product moves from the producers hands and into the processors, finally making its way to retailers, where it is then sold to the public. In order to maximize revenues for the state, a hefty 25 percent tax has been placed at every level of transaction, meaning processors have to pay a 25 percent tax on the product they purchase from producers (which they can dodge when acting as both a producer and processor), and retailers must pay another 25 percent tax on the product they receive. Customers purchasing from retailers would also pay tax on the products they buy.
All of this adds up to a fairly inflated price, which could steer many potential customers away from the legal market, and keep them purchasing from dealers or medical dispensaries. It’s unclear just what will happen with the medical market, as they will have some distinct advantages over retail stores. Medical dispensaries can offer product to minors, and also operate without a tax burden. Yes, people visiting medical dispensaries need proper documentation from a doctor, but for most people attaining the proper paperwork isn’t too difficult. Medical marijuana will be sniped at by regulators in the coming months, and nobody is quite sure if it will be rolled into the legal retail framework of the law or not. It could disappear altogether.
This could make for an interesting situation for investors, depending on how you look at it. There are companies like GW Pharmaceuticals (NASDAQ:GWPH) that are already producing products based on cannabis, and others are sure to follow suit. Plenty of marijuana startups also exist, notably companies like Leafly and GrowLife Inc. (OTC:PHOT) that can make a splash in the near future.
In cities across the state, retail stores are ready to open. One business, owned by Sean Green in Spokane, is already up for sale. NBC News reports Green has been offered as much as $2 million for his business, but he is looking to fetch a higher price. “If you risked 20 years of federal incarceration, how much money would it take for the risk to have been worth it to you?” he said.
With marijuana prohibition seeing its end in the state, many people, including Green, are expecting a big return on their investments. That includes time, legal risk, and the products they’ve refined over the years that are now going to market. Some things might not make it to stores however, if the Liquor Control Board doesn’t loosen their grip.
When stores open next week, there will also be a big infusion of new cannabis products available to consumers. Most people don’t realize there is an entire world of additional cannabis-related products that run the gamut from food to topical ointments, and that the industry is not strictly relegated to dried flower. The process of ‘dabbing’ has become really popular of late, especially with the growing fame of portable vaporizers, which are similar to e-cigarettes. Hash oils and extracts will be available for dabbers, but with a strict limit on producers, a problem is already becoming apparent.
There is an expected shortage to bottleneck the market right from the get-go, which will not only have customers paying higher prices for products across the board, but also leave many out in the cold until retailers can reproduce. Customers are allowed to purchase up to an ounce of cannabis at a time, and if the turnout is anything like what was seen in Colorado, stores should quickly move through their stock. There are going to be growing pains, and once supply can meet up with demand, the market should be in better shape. It will also be a while before regulators and government officials can expect to see how well the new law is working out, as the market may not find its legs for up to a year.
The zoning efforts by the state and cities bring up another issue which has yet to be resolved. Cities across Washington have put in self-imposed bans on retail shops, and many have longstanding moratoriums against medical dispensaries. The zoning issue was already taken care of in Colorado, but is something Washington will need to work out with time. “The problem with the Washington market is that the local zoning issues have not been settled like they were in Colorado,” dispensary owner John Davis told Forbes. “So what are these retail outlets going to sell? I would say it’s reasonable to believe that the shortage problems will be much, much greater than in Colorado.”
From an outsiders standpoint, the opening of the Washington cannabis market to legal sales will be interesting, if nothing else. Some reports indicate that things might not change very much, but it will be a very different experience for residents who have never ventured anywhere near a medical dispensary. Legalization is a definite positive, as incarceration rates drop and law enforcement has one less thing to worry about, and the state does take a cut of tax revenue to put towards schools and local health departments.
Washington will have a bumpier road than Colorado did with their cannabis legalization efforts. It will make for a great opportunity to compare and contrast two different methodologies for other states, as legalization starts to go nationwide. For some, it’s time to take notes. For residents of Washington, it’s time to get ready for a whole new era.
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