Hard times in the legal weed business
Plus some recommended reading
Legal weed is losing its luster in Washington as more growers eye the exit and buyers take their money to parts unknown.
That sobering picture comes to us from the RAND Corporation’s recent report on the state of the state’s cannabis industry conducted for the Joint Legislative Audit and Review Committee. The consulting giant found that Washington’s lost almost a third of its licensed cannabis producers since 2017. That coincides with slipping sales, which peaked in 2021 at $1.5 billion and have since dipped to $1.25B in 2023. This could be some combination of people buying less weed since COVID, prices falling, and competition from illegal markets and the legally murky trade in products made from industrial hemp.
There are likely a lot of factors at work here, but we’ll start with the elementary. Washington is growing an enormous boatload of weed. The weed industry’s chronic overproduction has, among other things, shoved prices down and people out of the sector per the report. In fact, we’re growing as much as three times the weed Washingtonians are snapping up.1 Add sky-high tax rates on top of that and you have yourself a reason to get out of dodge.2
Where all that surplus weed and their growers are going is the billion-dollar question here. It’s more than possible that people getting out of the weed game—or looking to get into it—are opting for the untaxed black market rather than paying a premium to play it straight. This all begs the question of whether dipping weed sales directly translate to people shelling out more money under the table for a whiff of dark weed.
The RAND report suggests that could be what’s going on. It estimates that the system produces 200K pounds of legal THC each year.
That’s an eye-popping number because there are 450K milligrams of THC in a pound. The standard-size edible is 10 milligrams, which will put most people on the couch for several hours. That adds up to 9 billion doses, or roughly 1,200 for every Washingtonian per year. Either we’re all very high all the time, or there’s a shit-ton of weed being diverted somewhere. (We should stress that this is our speculative back-of-the-cocktail-napkin math. The sober nerds at JLARC and RAND didn’t go there.)
Meanwhile, total sales through the legal system hit $1.2B or $230 for every human in Washington state. That’s also a really high figure given that a substantial slice of the population doesn’t partake at all.
The real intriguing question here is where is it going? Idaho is the closest market without its own legal weed, but many of the Gem State’s stoners live close to the border. Meanwhile, it's legal in most of the rest of the west. Texas? Florida? Smuggled to Asia?
Some other findings: Despite limits on the number of licenses, the cannabis industry is downright Darwinian for legit players. Around 56% of all growers bow out in less than five years’ time. Same goes for processors per the RAND report. Some 71% of retailers survive for that long. That gets you a lot of brand consolidation, which we understand is already going on as larger companies contract with homegrown producers.
That said, a theoretical Big Weed would have a bit harder of a time taking root in Washington. Washington bans vertical integration, meaning retailers can’t be producers or processors. This leads to mergers and acquisitions within specific license types—e.g. retailers buying retailers.
As the RAND report’s authors noted, the state’s irksome tracking system for cannabis leaves a lot of holes in the true picture of the legal weed landscape, namely how much is diverted into the black market or even exactly what customers are buying. In the absence of production data, RAND relied on the Liquor and Cannabis Board’s data about producer canopy sizes and grow type, monthly retail sales data, and detailed sales data from a private vendor.
The LCB is due to submit a plan to lawmakers by the end of the year to collect licensee data without billion-dollar errors. Just how much dark weed money will be flowing through the state is another question.
TG/PQ
Recommended Reading:
Seattle may revamp its local B&O tax
KUOW’s Joshua McNichols digs into a new proposal to reform Seattle’s local version of the business & occupation tax. The plan from Councilmember Alexis Mercedes Rinck would substantially expand the exemption for small businesses while boosting rates on larger operations to bring in some $90 million per year. The city’s in a deep budget hole, and Rinck and Mayor Bruce Harrell, who embraced the plan, will be on the ballot this fall. If the city council passes the plan, it would also go before voters this year.
PQ
PDC levies $20K fine against pro-CCA campaign
Jerry Cornfield over at the Washington State Standard brings us news of the Public Disclosure Commission’s move to fine Green Jobs PAC $20,000 for late and incomplete reporting of spending during last year’s campaign over whether to repeal the Climate Commitment Act via ballot measure. The commission didn’t find that the PAC, which deployed some major corporate money in defense of the cap-and-trade law, willfully violated the law. The PAC spent more than $3M on defeating the initiative. Most of the money came from oil giant BP America, which embraced the CCA as a money-making opportunity. The PDC had previously fined Let’s Go Washington, the sponsor of the repeal initiative, for similar violations.
PQ
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A pop of color for your Friday
Arya emerges from a bush during the morning walk with a temporary floral decoration. Want to see your pet in this space? Drop us a photo and some caption material.
It’s not just us. Oregon grew 1.75 times more than present demand for weed last year.
There’s a 37% excise tax on cannabis in these parts
It’s called “weed” for a reason!