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.”
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.”