Pot in WA, an update

A New York paper described the legal marijuana market in Colorado and Washington as “wacky” and “puzzling”. I started off interested in investing these businesses, but backed off when I saw the conditions.

As I’ve said before, the agency in charge of implementing the WA law is doing it’s job quite well. It issued 11 licenses for retail sales in the last month, which seems low until you consider that of the 57 it’s issued, only about 30 are actually open for business. And those sell actual product for just hours a week. They have next to nothing to sell.

The regulatory agency has issued 218 licenses to grow, and in the last month they’ve issued 48 licenses. Newly licensed growers won’t solve the current supply problem, but will help in 3 months.

The problem is that there is no market. A market is a fairly efficient producer to retailer to consumer relationship. Florida tomatoes have a market in Seattle, for instance. Somehow they get that far with everyone along the way being at least somewhat satisfied they’re making a living.

It looks to me that the growers are doing their thing just fine, though I’m reserving judgment right now as I’m watching for the results from the outdoor grows.

That leaves the consumer. Prices for legal pot are 300% of the black and gray markets in Washington (and Colorado). Both states have very efficient black and gray markets, CO chose to build on their gray market, while WA chose to start from scratch. Either way, the bulk of the consumers have a choice of buying on the un-taxed market at a third of the legal, taxed, market. You can buy an eighth-ounce of pot at your local tavern for $20, or go to the legal store and pay $65.

The difference is in taxes and the regulatory burden, high in both states. WA can adjust fairly quickly once the legislature convenes in Olympia, CO is stuck for a while. But there are “administrative interpretations” and “regulatory adjustments” available in both states to address the situation. Yes, phony manipulations of the law.

As a market, it’s wacky.

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