Business
10 years after legalization, Washington state cannabis growers face headwinds
Washington state residents voted to legalize adult-use cannabis 10 years ago this month, and in that time, the market has been a success – but not for everyone, and the challenges have been substantial.
As the state’s recreational marijuana industry has grown and matured over the past decade, some of the primary issues today include:
- A lack of access to capital. The state’s residency requirements hinder outside investment.
- Low wholesale prices. Craft and small cultivators confront an oversupplied flower market.
- Limited social equity opportunities for minority cannabis entrepreneurs.
But even with those challenges, that’s not to say the market as a whole hasn’t done what it was intended to do, which was to create a state-licensed economy for legal marijuana companies.
The 2022 MJBiz Factbook estimates adult-use sales in Washington state retail stores this year at $1.5 billion-$1.7 billion and reaching $2.3 billion-$2.5 billion by 2026.
“In 10 years, we went from medical patients being afraid they would lose their house because their neighbors would call the police on them, to soccer moms now serving cannabis at cocktail parties,” said Jessica Tonani, CEO of Verda Bio, a Seattle-based cannabis company specializing in plant research.
“We have come an extremely long way.”
Tonani made those comments last week while on a panel with fellow Washington marijuana business owners hosted by the State Liquor and Cannabis Board (LCB).
Craft growers
Like other long-running adult-use cannabis markets such as Oregon and Colorado, Washington state growers are experiencing low wholesale flower prices as cultivators continue to flood the market.
This year, cultivators had a strong growing season, with little to no adverse weather events, which led to a bumper harvest.
Add that to an already oversupplied market, and prices are sure to fall even lower.
Ryan Sevigny, a cannabis grower and president of Landrace Brands in the Seattle area, said the hurdles are mounting.
“The industry today is a tough place to be a farmer, particularly if you are small and would consider yourself craft,” he added.
Shannon Vetto, CEO of Evergreen Market, a cannabis retail company in the Seattle area, echoed that, saying craft growers are hurting the most and “being a farmer right now is so hard.”
“We have the best crops coming out in October and no one to buy them.”
For several years, the state has been weighing whether to allow small cannabis farmers to sell directly to consumers, similar to how wineries and breweries are allowed to operate.
Sevigny favors the move, but he would also like to see a discussion about defining craft cultivation licenses.
Vetto added that while retailers are nervous about direct sales, she believes “craft growing is a primary part of our ecosystem and we have to find a way to do that.”
Other cultivation hurdles cited included:
- The challenge cultivation businesses faced when state regulators changed the rules around canopy usage, which forced some growers to alter their cultivation plans.
- The cost, both financial and environmental, of using plastic radio-frequency identification (RFID) tags to account for plants in the Metrc seed-to-sale tracking system. One estimate puts the cost at about 33 cents per plant tag.
- The state’s excise tax rate of 37% on adult-use cannabis is by far the highest such tax in the United States. The average tax rate – including the excise tax and state and local sales taxes – totals 46.2%, which pushes some consumers to the illicit market.
Access to capital
Another long-standing complaint among industry officials is the lack of access to capital because, by law, cannabis business entrepreneurs must reside in Washington state for at least six months before obtaining a license.
Allowing out-of-state capital would “level the playing field,” Vetto said.
According to Vetto, marijuana multistate operators already are finding their way into the market despite the restrictions.
“We have some of the best growers in the nation, as well as some of the best operators, but I think we’re losing ground at some level,” Vetto added.
For Jim Makoso, president of Lucid Lab Group in Seattle, that lack of access to capital is a major obstacle to social equity gaining more traction in the Washington state market.
According to data self-reported to the LCB in 2020, less than 20% of marijuana retail owners identified as minorities.
Lifting the ban on outside investment is one component that could completely change the landscape for small and midsized businesses, Makoso said.
“The concern from a social equity standpoint is if we enable outside investment, larger companies will be able to come in and do what these large companies have done in other states, which is take a big foothold, have a huge amount of capital and push out products at lower margins to take advantage of higher volumes,” he added.
“Certainly, that’s a risk – and one you can’t mitigate away from.”
But, Makoso said, the risk to the industry is worth it.
“For social equity applicants, we need a thriving industry, and for that, you need access to capital,” he said.
Interstate commerce
One possible solution to many of the challenges in the market has been the potential advent of interstate commerce in the event of federal legalization.
To that end, an official from the Oregon Liquor and Cannabis Board met on Monday with Washington state regulators, including Director Rick Garza, so LCB staff could learn more about an Oregon law intended to position the state for interstate commerce should the federal government act.
In 2019, Oregon Gov. Kate Brown signed into law the bill that would permit the state to enter into agreements to export marijuana to other states.
The federal government must first lift its marijuana prohibition for Oregon’s export law to take effect.
Sevigny said that “oversupply could quickly evaporate if that comes to fruition.”
Access to capital also factors into interstate commerce. Washington companies would need to scale up quickly if the state wants to function as an export market, which seems likely with its abundant sun-grown cannabis.
Tonani sees an opportunity where “a lot of states might come online that have no infrastructure to grow right now.”
Source: https://mjbizdaily.com/washington-state-cannabis-industry-10-year-anniversary/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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