Why Washington state’s legal bud is still stuck in the weeds

Sales of recreational marijuana finally began this month in the state of Washington, but things are off to a slow start. Only 25 retail licenses have been issued so far, and supply is already running low. Just three days after opening for business, Seattle’s only weed retailer, Cannabis City, announced that its entire inventory had sold out.

Washington and Colorado became the first states in the US to legalize recreational marijuana under voter referendums held in November 2012, but they charted very different courses over the following months. Whereas Colorado’s retail market opened relatively smoothly at the beginning of this year, netting millions in sales and creating thousands of jobs, regulators in Washington have been more cautious, issuing licenses at a trickle, and keeping supply limited. The idea, experts say, is that limiting the size of Washington’s weed market will allow regulators to control prices and stock flows — especially across state lines — though their prolonged deliberations and regulatory somersaults have left some entrepreneurs uncertain about their future.

“I think it’s fair to say there’s a lot of frustration among people trying to cooperate with the new law and be above-board business people,” says Philip Wallach, a fellow at the Brookings Institution who has closely followed Washington’s rollout.

At first, state authorities allowed producers to grow cannabis in spaces up to 90,000 square feet in size, though they later slashed that limit to 21,000 square feet, creating problems for those who had already leased larger spaces. Some retailers, meanwhile, have taken issue with the lottery system the state used to authorize licenses. Authorities plan to issue 334 licenses this year, though retailers were chosen without taking geography or prior medical marijuana experience into account.

That highlights a crucial difference between Washington and Colorado, which launched its recreational market largely on the back of its medical marijuana industry. Authorities in Colorado already had a strong medical marijuana framework in place, and made it easier for medical dispensaries to transition into recreational sales. Washington, by contrast, does not tax or regulate its medical marijuana dispensaries, and did not give them preferential treatment when applying for retail licenses. Following federal raids on some medical dispensaries in 2011, Governor Christine Gregoire vetoed critical parts of a bill that would have regulated medical marijuana and protected providers from legal liability. As a result, medical marijuana outlets have been left in an uncomfortable gray area that Wallach describes as a “legal Twilight Zone.”

So while Colorado has surged ahead, with its more than 340 weed retailers pulling in millions in tax revenue over their first six months, Washington’s industry has yet to really get off the ground. It is still illegal for residents to grow marijuana at home (unlike in Colorado), and the state approved tight regulations for edible forms of the drug this week.

To some, the slow approach is for the best. Several cities in Washington have implemented moratoriums or outright bans on marijuana sales following the passage of legalization, amid fears that the drug may end up in the hands of children or lead to broader public health problems, and the state remains politically divided. Those urging greater caution point to Colorado, where hospitals have seen a spike in marijuana-related hospitalizations among children this year. (In response, the state government passed tougher regulations on the packaging of marijuana-based edibles.)

“I think you can make the argument that slower is better, and that actually the Colorado rollout has been a disaster,” says Kevin Sabet, a former drug policy advisor to the Obama administration and co-founder of Smart Approaches to Marijuana (SAM), an organization that opposes legalization. “At least in Washington they’re trying to be more contemplative.”

Legalization advocates acknowledge that it will take some time for Washington’s market to take flight, and remain confident that as momentum grows, public opinion will eventually tilt their way. Of greater concern are the state’s high taxes, which some fear could stifle growth and raise prices — perhaps to the benefit of the black market. Under current legislation, the state exacts a 25 percent excise tax at each point in the distribution chain, in addition to regular sales taxes. After the first three days of marijuana sales, Washington earned nearly $150,000 in excise tax alone.

“In a legal market, retail producers and sellers should possess an advantage over the black market,” Paul Armentano, deputy director of NORML, said in an email. “They should not be placed at a disadvantage because of the need to comply with unnecessary regulations or egregious taxation.”

For now, legal prices are higher than on the black market or in medical dispensaries, though that likely has a lot to do with the state’s tight supplies. Washington began issuing licenses to growers in March, but fewer than 80 producers have been greenlit so far, and many couldn’t harvest in time for last month’s opening. As a result, retailers are limiting their inventories or, like Cannabis City, temporarily closing operations.

But experts say the shortage will only be temporary, and as more retailers receive their licenses, prices will stabilize. Just don’t expect them to drop too low. Authorities don’t want to drive smokers to the black market, but they don’t want to fuel demand, either.

“Washington’s Liquor Control Board is charged with making sure that the legal price is neither too high nor too low,” Wallach says. “And they take the second part of that very seriously.”