Retail — and illicit — cannabis markets endure; medical in 'dire straits' - Salish Current
February 10, 2023
Retail — and illicit — cannabis markets endure; medical in ‘dire straits’
Matt Benoit

From edibles to dried flower and more, retail stores offer myriad choices when shopping for cannabis products. Retail stores are the dominant source for Washington buyers, while medical patients are seeing fewer outlets to meet their needs. (Matt Benoit / Salish Current file photo)

February 10, 2023
Retail — and illicit — cannabis markets endure; medical in ‘dire straits’
Matt Benoit

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When the first retail cannabis shops opened in the summer of 2014, legal demand exceeded legal supply. At the same time, more expensive prices in licensed stores discouraged some consumers from switching from their familiar but unlicensed dealers.

Today, nine years after retail sales of recreational cannabis began, most cannabis products are obtained legally in Washington.

But … not all. 

And in the medical market, legalized in Washington in 1998, analysts say that the trend toward fewer medical outlets that are compliant with Department of Health (DOH) regulations is contributing to a market in “dire straits,” with fewer options for patients.

Change is in the air.

As legal marijuana continues to normalize, the Legislature is considering bills this session that would legalize home-grown cannabis, remove a tax for qualified medical patients and add protections from arrest for medical marijuana patients.

Legalization has brought revenue to the state and to local governments. Of the $515.2 million collected from tax and license fees last year, about 51% went to the Basic Health Plan Trust Account. Another 30% went into the general fund, and 10% to the Health Care Authority, with smaller amounts to local governments, the Washington State Liquor and Cannabis Board (LCB), DOH, State Patrol, and research and other funding.

Shopping around

Before Initiative 502 legalized retail sales in 2012, Washington residents had only two options for obtaining cannabis: be a registered medical marijuana patient, or buy it illegally from someone they may or may not personally know.  

In 2021, Washington residents surveyed in an International Cannabis Policy Study (ICPS) said 77% of their purchases were from legal retail sources. That is far higher than what the study found anywhere else in the United States: only 57% in legal states and 44% nationwide. 

Legal sources are the most commonly used by cannabis consumers, studies show.

Alongside that, in Washington 44% of the time the source was a family member or friend and 17% it was an unlicensed dealer; another 9% was homegrown.

The reason a significant number of Washington cannabis users still buy the old-fashioned way can be explained by numerous personal preferences and perceptions, including price, quality and familiarity. 

Rick Garza, LCB director, noted in a press release that analysts projected at legalization that if the price of obtaining cannabis dropped below $12 per gram, the regulated market could compete with the illegal market.

Over time, that happened: cannabis prices fell as more retail stores opened and the regulated market underwent enormous growth. According to the LCB, the average legal price per gram of cannabis in Washington was $6.51 in 2021, compared to $13.58 from illegal sources. 

Even so, the LCB notes that while most state cannabis consumers perceive legal weed to be safer and higher quality than illegally sourced product, one in three still perceive retail prices to be higher than illicit market prices. 

‘I know a guy …’

Because longtime cannabis consumers in Washington had buying connections prior to I-502, many consumers still know growers producing on the illicit market, said industry expert Danielle Rosellison. As such, they may choose to continue honoring those relationships, especially if the product is of a particularly high quality. Rosellison, co-founder and CEO of craft cannabis farm Trail Blazin’ Productions, is also a board member for The Cannabis Alliance, a statewide nonprofit focused on cannabis industry advancement.

Many growers or sellers in the legacy market were not able to make the leap to the licensed marketplace and continue their business illicitly because they have not been given a legal opportunity, she noted. 

There are, however, advantages to the legacy market: no 37% state excise tax plus around 9% sales tax, and none of the packaging, traceability or security issues legal retailers face by operating in plain sight, Rosellison said. 

As an example, Rosellison said that, in the legal market, a licensed grower might sell one-eighth of an ounce of cannabis to a licensed retailer at $10. The retailer might then sell that same amount to a consumer at $30 to $40. 

In the traditional market, an illegal seller can offer that same product, likely at the same quality, at $10 to $15 less than retail — a win-win for buyer and seller. 

Growing issues

Despite the commonplace legality of cannabis in Washington, it’s still a Class C felony to grow, process or sell it without a license. Such felonies are punishable by up to five years in prison and/or a $10,000 fine. 

According to Sam Guter, a communications consultant with the LCB, the consequences of being busted for illegal grows include a seizure of all plants, cash and firearms found. 

For repeat offenders, the real estate used for the operation can also be seized. Anyone on the property at the time a warrant is served can be arrested, after which a prosecutor determines whether charges are actually filed, Guter said.

While this seems a deterrent to illegal growth and sales, many illicit sellers aren’t actually growing their marijuana outside the law. 

One former Whatcom County seller, who wished to remain anonymous in speaking with Salish Current, said that some sellers produce their product legally through a medical marijuana provision for home growing.  

Any state resident with a completed authorization form signed by a healthcare practitioner for a qualifying medical condition may join the state’s medical cannabis authorization database. Taking that form to a medically endorsed retail store gives them their medical cannabis recognition card for a $1 fee.

With the card, patients can make tax-free cannabis purchases of varying amounts at retails stores. It also gives them the ability to grow up to six plants in their homes for personal use, with possession of up to eight ounces of usable cannabis per person. If a healthcare provider determines they need more, those numbers shift to 15 plants and 16 ounces per household. 

Even without database entry, an approved medical cannabis patient is allowed to grow up to four plants and possess up to six ounces at home.  

Tracking compliance

State data on illegal sales and operations is fairly limited, Guter said.  

“Our enforcement system predates the passing of I-502, and was not built with unlicensed enforcement in mind,” she said, adding that there haven’t been many unlicensed retail store issues in Washington. 

The LCB’s Enforcement and Education division makes compliance checks and follow-ups on unlicensed stores a high priority, Guter said, and a recent bust shows their handiwork. Last September, officers seized a combined 1,300 pounds of cannabis from two unlicensed retailers in Pierce County.

Guter said more illegality is actually occurring on the production side of cannabis.

“This exists because illegal growers can camouflage their operations in Washington, as the average person assumes it’s legal,” she said.  

Much of this cannabis is sold for export across state lines, sent either to states where cannabis is still illegal or illicit retailers have a larger presence, she added. Transporting a controlled substance across state lines is, of course, a federal drug-trafficking crime. 

For marijuana transport of less than 50 kilograms (about 110 pounds) of marijuana, or between 1 and 49 plants, a first offense carries a sentence of up to five years in prison and a fine up to $250,000. A second offense carries up to 10 years in prison and a $500,000 fine. 

Higher prices and less convenience led the list of reasons buyers said they chose to buy cannabis illegally last year, with 18% of respondents citing each of those categories. (Matt Benoit / Salish Current illustration © 2023)

While the penalties are on the books, a law enforcement source once told Rosellison he had no plans to arrest anyone he catches growing marijuana or smoking it in public. There was little chance, he’d said, that a jury would find the accused guilty of buying a product they themselves could legally obtain. 

“It’s not worth their time to really go after these small-time, illicit market people,” she said. “Now, if it’s a commercial grow — if we’re talking hundreds of plants — that’s a different ballgame.”

Medical maladies 

Another reason someone might buy or sell illegally is due to the current condition of the medical marijuana market, which Rosellison said has been largely destroyed due to issues with its incorporation into the I-502 market. 

The 2015 Cannabis Patient Protection Act (SB 5052) provides, among other things, for retail stores to become medically endorsed, allowing them to sell medical grade products certified as such by the DOH. 

Rosellison said many previous medical dispensaries were also under the impression they’d be granted licenses like the recreational retailers. But that, she added, isn’t what happened. 

“People that had actually been part of the medical market didn’t get licenses, and people that should not have did,” she said. “It was painful, to say the least.”

John Kingsbury, a member of Home Grow Washington (which lobbies for legalization of home-grown cannabis without medical authorization), described the situation in a Jan. 18 webinar hosted by The Cannabis Alliance.  

Many stores were granted medical endorsements just by asking, he said, and then never worked to properly become DOH-compliant.

Kingsbury said he spent weeks cold-calling dispensaries across the state, and found numerous discrepancies between DOH and LCB lists — stores that were included on the DOH list but whose owners said they were not endorsed; store owners who erroneously thought they were endorsed; and some listed as endorsed but were failing to meet DOH requirements. 

This leaves medical patients with fewer places to actually use the medical system as it was intended.

It means many retailers cannot register a patient to be part of the DOH database registry for medical marijuana, which authorizes them for sales tax exemptions. 

It also means they often can’t obtain DOH-compliant, medical-grade cannabis products. This reduces their incentive to participate in the regulated market, Kingsbury said, making the illicit market an appealing place if they can get the high-THC products they require.  

Currently, just three medical cannabis companies in Washington are fully DOH-compliant, according to The Cannabis Alliance.

A DOH brochure notes that compliance includes DOH-compliant logos on products successfully tested for prohibited pesticides, heavy metals and mycotoxins. 

Products fall under three categories: general use, high-THC and high-CBD. The latter can be purchased tax-free by any adult, while the first two are tax-free only for those who are part of the medical database and have valid medical cannabis cards. 

Kingsbury said data indicates the number of medically registered medical cannabis patients in the DOH database is dropping rapidly, as are the number of active, registered cooperative gardens and retailers with genuine medical capabilities.

It all adds up to his bold prediction:

“I believe that if we don’t take dramatic action this year, by the end of the year the system will collapse,” he said. “I think that we are in dire straits.”

Working for change

The Cannabis Alliance is standing behind several pieces of pending legislation which could have positive effects in the cannabis industry if passed. 

These include HB 1614, an effort to legalize home-grown cannabis, and HB 1453, which would remove the state excise tax for qualified medical patients. 

HB 1563 and SB 5608 are also in the pipeline. They would provide ample arrest protections for medical marijuana patients beyond what current law provides. 

Ultimately, Rosellison said, she hopes that everyone in Washington can have equitable access to cannabis under the law. 

“We want to be as normalized as possible,” she said.

— Reported by Matt Benoit

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