Active recreational marijuana business licenses across the state, as of March 10th, 2015. Shown are 402 Producers, 359 Processors, and 127 Retail stores. Created on Google MyMaps, based on publicly available information from WSLCB.
Marijuana in America is quite a hot topic these days. With the majority of Americans now in support of full legalization, we are poised to finally end seven decades of cannabis prohibition, and the enforcement of drug policies that have been accused of being racially discriminatory, violating individual freedoms to choose your lifestyle, as well as indirectly funding criminal cartels by forcing the entire economy into the black market. Over those many years, millions have been jailed, countless lives ruined, dis-proportionally large number of them minorities, many billions of dollars wasted on campaigns across the world.
It’s about time that things changed. I won’t go into the whole history here, but let’s note that while things are changing quickly now, it’s been quite a long road to get here.
Few predicted the rapid speed at which legal regulatory frameworks have spread since Washington and Colorado first passed citizen-driven initiatives. Let me take a moment to say, I love democracy as conducted out here. Whereas Illinois has no method of passing citizen-driven legal initiatives, Washington is one of 24 states that have methods for citizens to get issues directly on the ballot, bypassing the legislature and all of its political nonsense, and in 2012, used this method to drive home initiatives to legalize both gay marriage, and recreational marijuana. The story of the campaign pushed by Allison Holcomb is told in Evergreen, an awesome crowd-funded documentary covering the issues of 2012, and the days leading up to election day. (View it on Netflix here!).
While federal policy lags behind, states, as the laboratories of democracy that they are, are moving forward and trying out a variety of legal frameworks. These are far more than decriminalization measures that were discussed in previous decades, where possession wouldn’t lead to charges, but production and distribution still carried hefty sentences–rather, I-502 in Washington, and Proposition 64 in Colorado, created entire legal frameworks for licensing, taxing, and sale of cannabis allowing the legal recreational industry to be born. In 2014, Alaska, Oregon, and Washington DC also passed similar measures, and more are predicted for 2016. Far from being a state experiment, legalization of cannabis in the 2010s is shaping up to be a full movement. The general consensus among government watchers is that this genie is not going back into the bottle.
In Washington, the state Liquor Control Board has been tasked with developing and managing the legal framework, and has been moving at a cautious pace, having only opened up sales in July of 2014. Unlike Colorado, which essentially extended it’s medical market to allow for recreational sales, Washington created an entirely new economic model for I-502, separating out businesses into Producers, Processors, and Retailers, which basically work like this:
- Producers (Growers): These are the growers of material; they have physical property where they grow seeds or clones and manage the raw material through harvest. They can sell unfinished product in the form of flower directly to retailers, but they cannot reproduce other products without a processing license.
- Processors (Product makers): These are the product developers and makers that provide added value to raw materials. They can only buy raw material from producers, and sell only to retailers (no sales to consumers)
- Retailers (Store owners): These are the only business that can sell to the end customer. They are forbidden from having an “economic interest” in either producers and processors.
As of March 2015, nearly a thousand businesses have been issued licenses, all trying to make it big in this new legal world. While there is much fanfare and enthusiasm, as well as mutual support in the industry while everyone tries to figure out the landscape, I expect to see quite a bit of churn, given the variability in price, supply, and the eventual commoditization of the majority of the products. While the market isn’t exactly cutthroat, the price pressure from the unstable supply, along with rather burdensome tax requirements have brought about unique challenges to many businesses operating in the space. Interesting figures include seasonal variability in price, as well as the significantly higher numbers of tourists than expected making up the customer base, upward of 50% of total sales, and closer to 80% of the retailers close to border states.
Legalization has also brought out innovative thinkers and venture capitalists looking to invest in the next big thing, producing products that otherwise might never have seen the light of day. Non-commodity products, like this marijuana-infused sex lubricant, to mainstream brands contemplating entry into the market may offer unique brands a chance to thrive, however, I do expect the majority of producers to find themselves in a price war to the bottom.
How will things change once the legal recreational market fully takes hold? I can only imagine that the impact of the industry will accelerate, I suspect in years hence, we’ll see new business models, new social activities (MJ games > drinking games), and other creative developments in what was previously a closet industry. In Seattle, a city councilman proposed a new legal concept–a licensed marijuana bar/vapor lounge.
Quite interesting times here!