Washington’s MMJ Businesses Surviving Amid Rec Rollout, but Fearful About Future

By Fred Dreier

Washington State’s nascent recreational cannabis industry has dominated national headlines over the past week. But little attention has been given to the state’s sizable – albeit unregulated – medical marijuana sector.

Dispensaries and their suppliers say demand is holding up well so far. Yet the start of recreational sales has cast a dark cloud over the medical marijuana industry, and many MMJ businesses feel the clock is now ticking on their very future.

Some fear that law enforcement could begin a coordinated effort to shut them down at any time, while others are concerned that lawmakers could pass new regulations next year that will wipe out the MMJ industry completely.

Recreational businesses also could put pressure on the state to address the situation quickly, as an unfair competitive climate favoring the medical marijuana industry has developed.

Operating in Limbo

Washington’s medical dispensaries have operated in a gray area for years, given that the state doesn’t have any substantial regulations on the industry and law enforcement has largely looked the other way.

It seemed as if that would change when the state legalized recreational cannabis.

Lawmakers moved to snuff out the medical cannabis industry for good, but they failed to pass rules this March to regulate the industry. So the businesses still exist in a kind of limbo, with no one sure what the future holds.

Several have closed. But most have remained open, trying to ride it out as long as possible. By some estimates, there are nearly 300 dispensaries in Seattle alone, and new ones continue to open.

“You could throw a rock from our offices and hit about a dozen of them,” said a representative from the Washington State Liquor Control Board, which oversees the new recreational industry but does not have any control over MMJ businesses.

An Impending Shutdown?

Many entrepreneurs are now bracing for the worst, believing it’s only a matter of time before the MMJ infrastructure begins to crumble.

The next legislative session begins in January, and there’s a possibility lawmakers will look to approve a separate set of regulations for medical marijuana businesses.

But the general thinking is that the state craft rules to ban the businesses. That’s because many lawmakers and recreational marijuana advocates believe he MMJ industry undermines the recreational industry.

“[Recreational entrepreneurs] are not happy about the MMJ situation,” said Hilary Bricken, a lawyer with Canna Law Group. “I think most licensees have faith in the state to rectify the system.”

With this as the backdrop, some medical marijuana business owners are vying for or have already won recreational cannabis licenses. Others are staying the course and hoping for the best.

“We’re going to stay open as long as we can,” said Ken Adams, owner of the Seattle Quality Collective.

Others are making backup plans, should the government shut them down.

Angel Swanson, owner of the Cannabis Emporium and Naturally Green Access Point dispensaries, applied for a recreational license but was denied. She’s now appealing the decision.

If Swanson wins, she will open a retail store, which will secure a place for her in the new era of cannabis in Washington.

However, if that doesn’t pan out and the state tries to shut her dispensaries down, she is planning to open a store that only carries CBD-heavy medical products.

“Our number of CBD-specific customers was really impressive,” Swanson said. “We think there is a market for it.”

Unfair Advantage

In the short term, at least, medical cannabis companies could benefit from the lack of regulations.

Recreational business owners must pay licensing fees, meet zoning requirements and adhere to a slew of rules regarding everything from security and testing to inventory management. They’re also subject to steep taxes.

All of this pushes the cost of doing business – as well as the price of recreational cannabis – up significantly.

Medical marijuana dispensaries, on the other hand, are not subject to these rules. They therefore have an advantage when it comes to price, inventory and even store location.

When Cannabis City, Seattle’s first retail cannabis store, opened on July 8, it stocked just four strains of cannabis, which sold for $15 a gram. After three days, the store sold out and has been unable to secure more because recreational cannabis growers haven’t produced enough marijuana yet.

By contrast, Seattle Quality Collective carries upwards of 10 strains at a time, and sells cannabis for $8-10 a gram, with some strains selling for $20 for a 1/8 ounce. The store also carries edibles, concentrates and vapor products, which are not yet available at retail stores.

“People will try the rec shops because of the novelty factor,” Adams, the dispensary’s owner, said. “Then they are going to realize that the system is broken.”

Straddling Both Sides of the Fence

Ryan Agnew, a Seattle lawyer who works with recreational and medical clients, said that the business climate has persuaded many growers to keep one foot in the medical marijuana industry while they transition some of their crops over for recreational production.

These growers, he said, believe that the medical industry will continue for at least another year, and that the high volume of sales through dispensaries will outweigh the revenue generated through retail sales.

Maintaining a presence in the medical industry, he said, makes better business sense than simply transitioning to the retail industry.

“I haven’t seen anybody who was growing for medical say ‘I-502 is coming, it’s time to leave,'” Agnew said, referring to the state’s recreational cannabis law. “Until the market pushes them into [recreational], they are not going to leave.”

And not everyone agrees that the lack of oversight gives the medical industry an advantage.

Swanson said the laissez-faire environment has given medical shops a leg up on pricing, but it has also bred toxic business practices that will only hurt the medical industry in the long run.

Swanson also wonders how some medical businesses prevent cannabis from entering the black market and whether they track which strains are purchased by patients.

“Some people see it as an advantage, but [I believe] it indicates a level of laziness that hurts those of us who are actually trying to help patients,” she said. “Those of us who care about our businesses and want to keep our doors open… we already do that type of stuff.”

Biggest Competition: Each Other

It’s unclear how big of a competitive threat recreational shops are to medical cannabis dispensaries, but to date the impact has been minimal.

Adams said his store continued to serve 35-50 patients a day, and customers are purchasing the same quantities of cannabis, edibles and concentrates.

“There hasn’t been a change,” Adams said. “Even thought there is all this hype about [recreational sales].”

That could change as more retail stores open and the price of recreational cannabis falls.

But, for now, the biggest competition for dispensaries is each other.

A year ago, Seattle Quality regularly attracted 75 patients a day. Within the last six months, however, three dispensaries opened within a half mile of his shop.

Swanson has seen the same trend play out. While one of her dispensaries used to be the only one within a two-mile radius, there are now eight shops open within the area.

To compete with the other dispensaries, Adams said he is asking his staff to better their customer service. He’s also carrying more strains, hoping that the quality of his business will outlast the quantity of dispensaries.

“We need to make sure our patients are really taken care of,” he said. “I hope that’s what can set us apart.”

10 comments on “Washington’s MMJ Businesses Surviving Amid Rec Rollout, but Fearful About Future
  1. Ryan Agnew on

    I think it’s worth noting that MMJ growers are more optimistic about the next year than dispensary owners. On paper, the collective grows their own. The reality is that they source from all over.

    Remember, the LCB is only chasing 25% of the market in the first couple of years. By the time i502/RMJ production in the pipeline gets up and running, the majority of demand will still be met through MMJ and black market production. Dispensaries open, dispensaries close, more open, and people keep on growing. The pendulum is swinging back in favor of the mmj grower and they will do what they do best until RMJ prices come down (if ever). (There are no serious proposals to allocate money for local law enforcement to enter homes, check ids, and count plants). Change will be market driven.

    Reply
  2. Wendy Buck on

    The market exists for both industries to successfully exist side by side. Currently we run a dispensary and are also in the process for our recreational license. There is a valid medical need for cannabis and as a career Emergency Room RN, I can attest to that fact by the improved quality of life we’ve witnessed in our patients. I can also attest to the fact that prohibition of cannabis for recreation is wickedly unhealthy for our society, as it creates an underclass of otherwise law abiding non violent ‘offenders’ whom after conviction are unemployable, in turn creating difficulty sustaining and maintaining housing or any semblance of a normal life. Where does these people end up? Back on to state coffers. It is my great hope that our legislators will see that both markets bear efficacy and that both are unique, requiring separate sets of regulations and governing bodies.

    Reply
  3. Steve Sarich on

    I saw one 502 store selling at $756 and ounce and another at $924 an ounce. There’s little wonder why these 502 stores would like to eliminate any competition when they’re selling at these outrageous prices. But the reality is that, even if they were able to shut down affordable access points for medication, the patients are NEVER going to pay those prices.

    The LCB, who estimates that medical is only about 10% of the total marijuana market, has failed to explain to the public how they are going to close down the other 90% of their competition that is owned by the black market.

    If they try to force patients into the LCB stores, most, if not 100% of them, will simply go back to the black market. Marijuana delivery services, like Winterlife, have popped up all over and are already doing a landslide business.

    Will the 502 businesses lobby to restart the War on Marijuana in Washington to protect their own greedy business interests from these black market delivery services….like they did with medical last session?

    Before they do, they better stop and think that. I’m pretty sure that any business owner that contributes to shutting down medical again next year will be picketed by the medical community. When you try to take away our medication, we get just plain vengeful.

    You’re probably being promised by the same people again that they can defeat medical next year. You remember hearing that last year? Well we had the votes to defeat you last year and we’ll have a lot MORE votes next session.

    You will never have an unchallenged monopoly, no matter who you whine and cry to for help….and no matter what your attorneys are telling you.

    Reply
  4. Matt on

    Untrue . Dispensaries will be illegal next year , and in time for more rec supply . We will see mmj prices few years ago in rec industry when they shut down. Dispensaries clos for good

    Reply
  5. don sublie on

    With the new cbd test going on from FDA about cbd spray meds available from England the mmj industry is coming to a halt it’s just how long till we are criminals again because it will be expensive any thing with FDA stamped on it cost big bucks hell II have a batch of a time filling my stomach meds because they cost so much what insurance company will pay for mmj none

    Reply
  6. Barry S. on

    Everyone needs to keep in mind that this is a new industry, it’s federally illegal, and citizens and elected officials alike are still figuring this all out!

    I agree that supply and demand are going to determine price, and that people will go where the price is low and the quality is high.

    I am interested to see which direction the State of Washington goes with MMJ. As a licensed producer/processor I would like to advocate for the existence of an MMJ system WITHIN WA state. I fully believe in the medicinal effects of MJ! With that said, the MMJ system is widely abused (though I am grateful for it has brought us to where we are now) by most who do not actually have a real medical need for cannabis. I think the MMJ system should have their own rules and taxes and should be limited in the number and amount as well as having more stringent rules on who qualifies and why.

    Just my two cents…great article!

    Reply
  7. Leslie Masters on

    I find it interesting that we are negotiating over the right to own, grow, use, sell, or make a business over a “plant”! Its alright to own and grow deadly nightshade, foxglove, cinnamon and netmeg etc. etc. all of which can kill or others. just to name a few. mmj could be regulated and if they try do away with it or price it toohigh the underground with thrive.

    Reply
  8. Al Felker on

    +1 Barry. Well put.

    I want to be legal and law abiding and not have to pretend to be sick. I also want quality control (no herbicides, pesticides, seeds, residue) in my product. Most Medical Pharmacies get product from too many sources to ever guarantee quality. Besides, no incentive to maintain quality packaging either.

    Reply
  9. potguard on

    90% or recreational marijuana sales in Colorado, come from out of State. MMJ sells more than recreational, and over 100,000 people have mmj license, of which 25% of them can grow their own. Also, Any Adult in Colorado can grow six plants. Now that’s freedom of choice.

    Reply

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