December 16, 2021
Growth in local cannabis business amplifies challenges as well as revenues
Kenneth Duncan

With spikes in demand, keeping up with a turbulent supply chain is difficult for local dispensaries — one of many challenges faced by cannabis businesses, including smaller local shops such as West Coast Wellness at Nugent’s Corner. (Courtesy photo)

December 16, 2021
Growth in local cannabis business amplifies challenges as well as revenues
Kenneth Duncan

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Cannabis industries in Whatcom, Skagit and San Juan counties have experienced a large increase in both revenue for retailers and excise tax proceeds for governments over the past two years. But producers and dispensaries are struggling to keep up with a growing customer base, a volatile pandemic-influenced market and global supply chain shortages. 

According to Washington State Liquor and Cannabis Board (WSLCB) data, from June 2019 to June 2021 the three counties saw a combined $22.5 million increase in retail cannabis sales — $13.3 million in Whatcom, $7.9 million in Skagit and $1.3 million in San Juan. 

Cannabis excise tax revenue rose along with that, with $8.3 million more coming from the three counties compared to their 2019 totals, for a grand sum of $29.7 million in tax revenues in 2021. 

Statewide, excise tax proceeds from cannabis revenue rose from $387 million to $553 million over the same period, with overall retail revenue at just over $1.4 billion.

With growers enjoying estimated wholesale revenue of $653 million in the 12 months ending in September, cannabis is now the state’s fourth most valuable plant product, following potatoes, wheat and apples, according to cannabis data outlet Leafly’s 2021 report.

Sales growth means competition for supplies and workspace, and smaller, more locally based businesses are struggling to keep a foothold among the bigger players. 

Cannabis companies in Washington occupy three roles. Producers and processors (often combined into one business) cultivate the actual plant and process it into various concentrates, candies and topicals. Dispensaries sell the finished product to customers. Across all three counties there were 123 dispensaries and 103 producers/processors as of August 2021, according to 502data.com. 

Producers are licensed in three tiers: tier one, who are allowed 4,000 square feet for cannabis production; tier two, who are allowed 10,000; and tier three, who are allowed 30,000. 

Pandemic bounce

Rachelle Mitchell, retail operations manager at West Coast Wellness on the Mount Baker Highway at Nugent’s Corner, said that the beginning of the pandemic led to their largest day of sales to date as lockdown living began in March 2020.  

“It was the busiest day we’ve ever seen, more than a normal 4/20 [some cannabis users observe an information celebration on April 20, or at 4:20 p.m., referencing a slang term for using marijuana], which is the biggest day of the year for us,” Mitchell said. “After a few weeks we started seeing people coming out who realized that they weren’t going to be working for a while or getting tested.”

Sales data for West Coast Wellness Enterprises shows a jump in monthly revenue beginning in early 2020, according to 502data.com. 

Other local dispensaries as well as producers and processors reported a similar bounce on and after March 2020, with more peaks throughout 2020 and 2021. 

Sales began to dip back toward pre-pandemic levels late this year.

Amy Ross, owner of cannabis producer Oz Gardenz in Bellingham, said their sales started to decrease over the summer. She speculated that the expiration of the statewide eviction moratorium and unemployment benefits may have lowered disposable income for some. 

“I think that the massive demand was a bit of a blip,” Ross said. “There were a lot more people consuming marijuana while they were back at home, but they might be back at work now.” 

Deep pockets buy scarce supplies

Oz Gardenz, as a tier one producer, has less flexibility to respond to increased demand, compared to tier two and three producers operating with larger square footage. 

“We were already running at full capacity, so we didn’t have the ability to add more plants to help meet the demand,” Ross said. “And even if you do, it’s a three-to-four-month process before you can even have more product available for the market.”       

For Ross, who employs 12 people, a volatile market means competing for scarce supplies and shelf space against tier two and three producers, who may have more weight to throw around with cannabis wholesalers and dispensaries. 

“There are large companies that have deep pockets that are going out and purchasing all the packaging supplies, and some of us are just scrambling to try and get what we need,” said Ross. “I would say that there is a lot of negotiating that happens from the larger grows with the retail shops that we are not involved in because we’re just not that big … what would be a normal turnaround for shipping on our gross supplies has gotten longer and more expensive.”

Demand and supply chain pressures

With states including New York, Virginia, New Mexico and Connecticut recently legalizing cannabis, demand for the strictly regulated cannabis packaging and necessary farming supplies such as fertilizer has expanded across the 18 fully legal states.  

Supply chain constraints have impacted West Coast Wellness and others. Long wait times on both cannabis and related accessories have influenced what they can stock, leading to product lineup changes and frustrated buyers.  

“We’ve had some issues with getting paraphernalia. Some of it’s just been sitting on boats, or sometimes we’ve even had producer-processors that were waiting on products, but they can’t get the packaging, and all the packaging has to be approved by the state,” Mitchell said. “We definitely started looking out for other vendors, maybe those who have similar product at the same price points so we could still maintain those price points, while not changing things up too much and keeping similar quality.”

From shopping to coping

Washington’s users were in a much different position from those in non-legalized states when COVID-19 forced people to move indoors, and users young and old found themselves reassessing their relationships with the drug. 

Mitchell said many of her customers — both regulars and nonregulars — moved from shopping for the purpose of recreation toward using marijuana to deal with the pandemic. 

“We saw a big increase in customers looking for help with anxiety, stress and sleeping — that kind of thing; also people who maybe were interested in topicals or especially sleep aid type products making purchases that they wouldn’t have before,” Mitchell said.

Legal cannabis and the effects of the pandemic have had ripple effects throughout Northwest Washington and the state. 

For 75-year-old Whatcom resident Scott Walker, the county’s cannabis culture is a far cry from what he grew up with. Going on 55 years of cannabis use, Walker said that the safety and consistent potency provided by local dispensaries keeps the hobby healthier and less risky than before. Both the product itself and legal consequences are more predictable. 

Before legalization, Walker said, “every time, you were out of your comfort zone. You didn’t know whether or not they were grown with a pesticide. When I buy any now, I know it’s pesticide-free.” Illegal grow operations, he said “used a lot of chemicals. Once you got it, you weren’t sure that you weren’t smoking something really bad for you.” 

‘Culture of weed’

For Joe McPhee, a 22-year-old living in Bellingham, growing up in a cannabis-positive environment has its own set of challenges. He was 14 when legalization went into effect in 2014, meaning he’s spent his entire adult life around decriminalized cannabis.

During the pandemic, he decided to take a two-month break from regular usage and found the lack of resources to help him do so surprising. While the pandemic’s influence on increased use of alcohol and opioid drugs, not to mention food, has been much discussed, little attention has been paid to increases in cannabis consumption. 

McPhee said he finds it frustrating that the “culture of weed … has gone full-on heavy into acceptance where people think it can do no wrong. I wondered what resources there are for people trying to stop and I looked up just to find nothing … people are like, ‘you’re trying to stop?’ That’s something that I dislike … the whole consciousness that it can’t be addictive.”

While cannabis is generally regarded as less addictive than other substances, dependance on the drug is acknowledged: Washington requires a warning about the habit-forming potential on packaged cannabis products, and roughly 138,000 people sought treatment for their use in 2015 according to the National Institute of Drug Abuse. The most popular Reddit forum dedicated to kicking cannabis habits, r/leaves, has over 200,000 members. 

While McPhee wouldn’t describe it as an addiction per se in his case, he said he became uncomfortable with cannabis’ presence in his life. 

“I fell into habitually smoking, but in a way where it felt like no big deal,” McPhee said. “I felt like ‘how could that be bad?’ But it went on for a while … I started to have those weed cravings that people say don’t exist.” 

According to Monitoring the Future’s National Survey of Drug Use, cannabis use in 2020 was at an all-time high among adults aged 19 to 30, with 42% of respondents reporting that they used the substance at some point throughout the year, and 26% reporting monthly use. While no state-specific equivalent data is available for Washington, the increase in sales and per-month spending among the age group shows a rising local interest in the drug since March 2020. 

With more use comes more revenue, and cannabis plays a role in funding both the state and its counties. Crosscut.com reported that of the more than $1 billion in projected cannabis revenue from 2021 to 2023 derived from taxes and fees, $589.3 million is projected toward the state’s Basic Health Plan Trust Account, which provides health care for low-income citizens. And as of 2015, $30 million has been set aside for local governments that allow for cannabis sale. 

Dialing in on regulation

Despite cannabis being fully decriminalized in Washington, barriers remain for producers like Oz Gardenz that want to expand their business. The strict legal requirements associated with cannabis make it far more difficult than relocating a more conventional company, alongside existing hesitation with working with the cannabis industry in the first place. 

Some municipalities in Washington prohibit any cannabis industry whatsoever, with Lynden, Everson and Sumas maintaining zoning laws that prevent any producers, processors or dispensaries from setting up shop.

“First you have to see if you can locate a place and if you can, does it have adequate power supply? Is it within the WSLCB requirements of where we can and can’t be? Will the landlord even be willing to work with a cannabis business?” said Ross. “And then if we get all that, then we can see if we can execute on a lease. And then from there you have to get approval from the county and any municipalities.” 

Whatcom cannabis producers have been subject to some controversy, with the Whatcom County Council placing stricter rules on both producers and processors in October after public complaints regarding odor, lighting and traffic. Following a six-month moratorium on licensed expansion in April and an extension of that moratorium another six months, the council supplemented existing zoning law with additional rules addressing these complaints. 

For dispensaries, however, the pandemic led to a loosening of restrictions that helped both customers and retailers maintain safe and flexible purchasing habits, with the state’s introduction of curbside pickup for retailers intended to keep contact at a minimum. For medically endorsed outlets like West Coast Wellness, at-risk customers make up a large part of the customer base. 

“The curbside pickup was such a great addition, especially for us, because we do serve a lot of cancer patients and people with MS and fibromyalgia and things like that who were really scared about coming in,” Mitchell said. “The state has been stretching out the time limit that they’re going to allow it, and I hope they continue to allow it.”           

Reporting by Kenneth Duncan

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