The recreational pot industry in Washington State is growing fast. It’s expected to hit the one billion dollar-mark in sales for the 2016 fiscal year ending in June, according to the state Liquor and Cannabis Board. Also in June, a merger is planned with the medical marijuana industry that is expected to add to growth. By fiscal year 2019, projections for marijuana tax revenue reach $362 million.
The long-term success of the legal leisure weed trade in Washington may depend on whether existing conflicts between state and federal law on marijuana are resolved. Another concern is taxes. Some industry experts warn Washington’s higher marijuana tax rate compared to Oregon’s might entice both customers and sellers out of state or back onto the black market.
A $1.3B Annual Market In Washington
In the past year the amount of marijuana grown and sold in Washington state has increased dramatically. Usable marijuana production increased from 4,428 pounds in April 2015 to 8,615 pounds in April 2016. Recreational marijuana was legalized by Initiative 502 in 2012. The first legal sales began on July 8, 2014.
A December 2015 report for the state estimated that the overall value of the marijuana market in Washington is around $1.3 billion annually. Of that an estimated $480 million was from medical marijuana, $460 million for state-licensed recreational stores and $390 million in illicit sales. This breaks down to 37 percent of sales in medical marijuana, 35 percent in legal recreational pot and 28 percent in black market sales.
Much of the legal recreational pot sales are to buyers formerly on the medical or black markets, said Sen. Ann Rivers (R-18)
‘Traditional Business Folks’ Getting Into The Game
But the growth also shows that new blood has entered the market, including entrepreneurs. That’s according to Washington CannaBusiness Association Executive Director Vicki Christophersen. The trade association represents licensed and regulated cannabis businesses.
“Most of the people we have in the association and the vast majority of people that are licensed weren’t necessarily selling or producing on the black market before,” she said. “Most of the people we deal with are your traditional business folks. It’s a whole different ballgame from my perspective.”
An April 20 report by the state’s Liquor and Cannabis Board shows 133 licenses for producing marijuana have been issued since July 2014. An additional 194 commercial grower applicants await approval by the board. A total of 322 retail licenses have been issued, with 243 of them reporting sales.
Washington Liquor and Cannabis Board Spokesperson Brian Smith said despite the revenue and sales growth the state probably won’t reach the maximum number of allowable licenses of 556 due to city ordinances and bans limiting the available space for pot shops.
Products And Clientele Have Diversified, Too
Much like the changes among store owners, Christophersen said the products have also shifted from the stereotypical image of a fat burning spliff, or smoking bong. Legal marijuana products sold in Washington certainly include plenty of leafy bud, but also mints and edibles that don’t leave a cannabis odor afterwards.
While touring retail shops in her district Rivers said it “blew me away” when she learned how many customers came from more conservative backgrounds and had only started purchasing marijuana after it had been legalized.
As with alcohol, the potentially harmful health effects are acknowledged, so moderation is well-advised. State-required warnings at sales premises include that marijuana “may be habit forming” and “health risks may be associated with consumption.” Recreational pot in Washington is legal only for users age 21 and older.
High Taxes Can Backfire, Industry Group Warns
The goal for the state moving forward is to keep cannabis away from kids while ensuring the industry remains “well taxed and well regulated,” said Rivers.
The booming sales have also meant more tax revenue for the state. In the 2015 fiscal year the industry generated $65 million in taxes. Since July 2015 the state has collected roughly $139 million.
Washington imposes a 37 percent excise tax on recreational marijuana, though other taxes can add up to a 50 percent of the purchase price, said Christophersen. The worry is that a high tax could lead to an increase in illegal sales. “We’re generating so much revenue there’s room to lower the tax rate,” she said.
Christophersen warned that Washington’s taxes on legal marijuana may have ramifications later on.
Cities like Vancouver along the Oregon border saw a temporary drop in sales in October when Oregon legalized marijuana because for three months it was tax free, said Smith.
However, sales quickly resumed in Washington once Oregon added a 25 percent tax in January, he added.
Conflicts With Federal Law Need To Be Resolved, Some Say
Ultimately, the federal government needs to decriminalize recreational marijuana so that federal laws in areas like banking don’t continue to stymie the industry in states like Washington, Christophersen said.
For example, the increasing demand for new marijuana products has also spurred efforts in research and development. However, federal prohibition may deter some labs from such research, said Rivers.
For the time being the feds have not attempted to stop states that have legalized recreational marijuana from doing so. The Department of Justice has outlined certain guidelines on how will they enforce federal law in those states. Among them are efforts to prevent access to minors and preventing marijuana possession or use on federal property.
Repealing federal marijuana prohibition outright appears to lack the political support needed.
Last year a bill was introduced in the U.S. Senate to take a small step in that direction by legalizing medical marijuana. The bill has yet to make it out of the Judiciary Committee.
Christophersen doesn’t expect these changes to happen overnight.
“It’s going to be a slow bumpy road,” she said.
The state’s Liquor and Cannabis Board approved rule changes allowing out-of-state investors to finance marijuana businesses as a way to attract more funding. Before, a six-month residency was required.