- DH
- A HUGE MEDIA ORGY IS WATCHING OUR LEGAL POT ROLL-OUT What they'll see is a system suffering from errors in implementation at the state level
People are rejoicing that pot stores are opening todayâpot stores, for godâs sakeâand rejoicing certainly seems appropriate. For too long, pot laws have been a racist, unwinnable, expensive mess. If this alternative to prohibition succeeds, the new regulatory models of farms and stores in Colorado and Washington State could serve as a model for national change.
But if it fails?
If it fails to replace the black market, if it fails to extract profits from cartels and the gangs still get rich, if drugs are still easier and cheaper to buy on the street, and if we fail to make pot an above-board industry? Then it becomes a warning to other states, and fodder for those who argue the illegal pot market is unbeatable and legal regulation is too quixotic for America to pursue.
Which is why Washington's experiment is off to a concerning start.
Most troubling, the system that kicks off Tuesday is designed to replace less than 10 percent of the stateâs black market for pot. Of the 24 stores that have received licenses so far (out of 334 expected to eventually get licenses), very few are in dense urban centers where demand is greatest. Only one store is in SeattleâSodoâs Cannabis Cityâand itâs one of just two stores in all of King County, the most populous county in the state. Pot is expected to run out quickly in the first weeks. Shortages look inevitable for months or years. The prices, as a result, will likely be artificially high.
So the illicit pot market weâre trying to crush? It will be practically unscathed. Thatâs not what voters wanted, nor is that necessarily what they voted for.
Itâs true that the feds are making Washington State jump through hoops to avoid a legal challenge. Itâs also true that some people with licenses but no store yet blame themselves for the delay. (âItâs natural for people to blame others,â John Branch, who has a license to open a store in Seattle, told The Seattle Times. âBut Iâve got no complaints⌠Iâm being cautious and careful.â) Still, it's clear that when it comes to many of the structural problems weâre seeing now, they are overwhelmingly the result of the Washington State Liquor Control Boardâs preventable mistakes in putting our new legal pot market together. The board, which was tasked with implementing a 2012 marijuana initiative, created many of these problems with a heavy-handed, poorly informed rulemaking process and a lottery that allowed in too many people who weren't quite ready to become pot sellers.
To be clear, weâre not so high that we canât see the big picture. Legal potâeven a flawed systemâis an accomplishment, so weâre not suggesting this system is worse than pot prohibition. No matter how rocky the road to get legal pot or how long the lines to buy a gram, itâs better than the long, rocky road to jail or fines afforded to the pot smokers in 48 other states.
But, Jesus, did the state screw this pooch. Here are some of the biggest things the state bungled on the way to full legalization:
Not enough pot
You'll never believe the name of the consulting firm hired by the state to estimate how much pot weâll need. Itâs a company called BOTEC, short forâno shitââBack of the Envelope Calculation,â which is shorthand slang for a simplistic guess that lacks mathematical proof. BOTEC told the liquor board in 2013 that Washington needed to license 2 million square feet of pot canopy over the first year of legal stores. That would, according to their estimates, satisfy a mere 25 percent of the existing pot market and leave the rest of market (three-quarters) to run illegally.
And the state went with it.
âWhat we donât really understand is why they landed on a 2-million-square-foot plant canopy,â says Hilary Bricken, a lawyer at Harris Moure who oversees the Canna Law Group. âWe are not going to capture more of the black market, or even 25 percent, if they keep moving at this rate,â she says.
It turns out, however, the state is far short of even that low-ball estimate. According to liquor board spokesman Brian Smith in a phone call this week, the state has issued only 90 producer licenses for a total of 687,644 square feet of pot canopyâless than 8 percent of what state estimated it would need to grab the illicit marijuana market. Many of those gardens are still weeks or months from harvesting their first plant.
Ironically, this means that when the attention on buying legal marijuana is at its highest, weâll have only a tiny fraction of the supply necessary to meet demand.
âWe are not going to replace the black market overnight,â says Smith. âOur goal was to create rules to govern a system and we have completed the rules.â When will the state replace most of the black market? âI donât think we have an estimate on that,â Smith says. âWe hope to make inroads within five years.â
Meanwhile, the state continues to make opening pot-growing businesses a monumental hurdle, says Bricken. She has represented hundreds of clients trying to break into this burgeoning industry, and says âalmost all of themâ have been frustrated by trying to work with the state. âI canât name one that hasnât been.â
âDo I think there has been over-regulation?â Bricken asks. âOh yeah.â Besides a lack of transparency from the state, rules changing halfway through the application process, and simply not enough licenses to satisfy demand, Bricken says the state has made it too financially risky to open a pot farm.
For example, the state has required would-be pot farmers to secure a location and meet copious conditions before even being considered for a producer licenseâwhich scares off financial backers. The state is âasking them to take the risk before the license is even issued, which most investors will not do,â Bricken says. Compared to retail store proprietors, she says, farmers âneed the most equipment, the most space, and the most working capital.â
One entrepreneur named Jane, who asked that we not use her last name, says her start-up costs would exceed $300,000 for an outdoor farm and more than $1 million for an indoor facility, which both require security, surveillance systems, and other specialized equipment to meet state requirements. She said her first yearâs harvest would be âsmall,â and working with the liquor board has been âburdensomeâ because âitâs not clear what the liquor board wants.â
While Bricken says some producers and processors will succeedâand she acknowledges federal zoning regulations present their own set of complications for farmersâshe believes the regulatory system as it stands is riddled with âdetrimental flaws that will force some people to fail.â She hopes the legislature will intervene in January to facilitate more stores in more locations, and more suppliers to meet demand.
âA lot of people are not going to drive 25 miles for a $500 ounce when they could get it from their friends,â she says.
Too few pot shops
Seattle is slated to get just 21 cannabis stores. This seemingly-arbitrary allotment is far fewer than the hundreds of dispensaries already serving medical marijuana patients only, and City Attorney Pete Holmes has repeatedly asked the liquor board to increase this number. The board says it may consider the request in the future, but is currently standing by the ridiculous allotment.
This number is a population-based portion of the 334 stores the liquor board decided we should have statewide. Why 334? Because thatâs how many state-run liquor stores we had when voters privatized liquor sales in 2012, of course.
Beyond the arbitrariness of this number, the process for granting store licenses was a problem. The liquor board could have licensed retailers after they fulfilled stringent state requirements and were ready to open, but instead it decided to hold a lottery for licenses before anyone had really gotten ready. Some odds-driven investors realized that, despite a limit on owning more than 3 pot shops, the liquor would accept an infinite number of $250 applications during a month-long window last year. So, just like buying raffle tickets, many lottery players stacked the odds in their favor by submitting far more applications than they could even legally operate.
By throwing the fate of legalization to this kind of computerized drawing, rather than allowing ready-to-go businesses to move forward, the liquor board invited the inexperienced and the unqualified, along with cunning California cannabis barons, to literally play a game of chance for $250 a ticket. One result of this ganja gold rush: only one Seattle pot shop is actually ready for opening day.
âPart of the issue is, we may be ready to license people who arenât ready to be licensed,â says liquor board spokesman Brian Smith. âThat is the issue in Seattle. Itâs the biggest city in the state, but we were finding a lot of licensees are not ready.â
While some of those people with licenses do blame themselves for the slow progress, not having enough ready-to-go store operators in the pool of licensees is entirely the liquor boardâs fault, and it means we wonât have enough pot stores to meet the needs of our city. Consumers will need to drive some distance to find a legal cannabis store, and the black market will continue to thrive.
Not even the state is clear on where stores are allowed
Can I open a pot business here? This should be a simple question. If the state fails to answer it, more would-be businesses fail to open and the state fails its mandate to implement a legal pot market. But the state apparently sometimes canâtâor wonâtâanswer that question.
Take Boren Place. Itâs one of Seattleâs smaller parks, a bench atop a triangle of grass at the intersection of Broadway and Boren Avenues. Itâs easy to miss. Google Maps doesnât even show it as a park. But if it has âfacilities for rest and/or recreation,â pot businesses canât locate within 1,000 feet of it under liquor board rules that grow out of of zoning language in I-502.
In October, we inquired about bench-only parks, and liquor board spokesman Brian Smith said that if a city, county, or state agency called a park a park, the liquor board âwould likelyâ consider it a park, but many will be considered on a case-by-case basis. âIf we list out all the things a park is or isnât then weâve restricted our ability to work with an applicant,â said Smith.
To provide a clear example of such a park, we inquired about Boren Place in February. After researching the issue, Smith provided an official answer: Boren Place âmay be considered a park by definition.â
This inability to provide clear guidelines on what qualifies as a parkâand where you are prohibited from opening a businessâmay allow the liquor board flexibility, but it adds uncertainty for applicants and prevents the public from validating the data being used to disqualify applicants.
Likewise, the state has purchased much of its mapping data from Esri, a private mapping company, and their contract restricted distribution of that data (the Attorney Generalâs Office also declared Esri-licensed data exempt from public disclosure). What this means is that cannabis business applicants canât get access to the same data the liquor board is using to qualify their business locations. So, in effect, the only certain way to know if a location will be disqualified is apply and then be disqualified. This Catch-22 means qualified entrepreneurs will see their pot shop plans unexpectedly flushed down the toilet with no chance to re-apply.
Too many rule changes
The liquor board made numerous off-the-cuff policy changes resulting in delays and increased uncertainty for would-be pot businesses. In January, the board said 500 applications were too close to schools and other prohibited zones and nixed them from the retail licensing lottery. But the next month, the agency said those unqualified applications would be allowed 30 days to change addresses.
The liquor board originally said that using a single property for multiple retail applications would not be allowed, but later changed course on that decision, too, so game-playing investors could submit unlimited applications using a single pot-friendly landlord.
The board recently announced that applicants who update their address will be placed on hold for six months as punishment. But assuming a potential grower updates their address to a location they actually plan to grow pot, placing them on six-month hiatus wonât get pot to market any faster.
Such willy-nilly rule changes are the liquor boardâs reaction to problems it created after introducing too much game theory into the licensing process. As a result of this, and all the other liquor board stumbles, consumers will be forced to wait for most stores to open and for a consistent supply of legal cannabis, and they will be gouged on pricing in the meantime.
Correction: Due to an editing error, this post originally said that 687,644 square feet of pot canopy would grab 8 percent of 25 percent of the marijuana market. In fact, that square footage would grab 8 percent of the total illicit marijuana market.