Glut of legal pot has growers struggling

SEATTLE – Washington’s legal marijuana market opened last summer to a dearth of weed. Some stores periodically closed because they didn’t have pot to sell. Prices were through the roof.

Six months later, the equation has flipped, bringing serious growing pains to the new industry.

A big harvest of sun-grown marijuana from Eastern Washington last fall flooded the market. Prices are starting to come down in the state’s licensed pot shops, but due to the glut, growers are – surprisingly – struggling to sell their marijuana. Some are already worried about going belly-up, finding it tougher than expected to make a living in legal weed.

“It’s an economic nightmare,” says Andrew Seitz, general manager at Dutch Brothers Farms in Seattle.

State data show that licensed growers had harvested 31,000 pounds of bud as of Thursday, but Washington’s relatively few legal pot shops have sold less than one-fifth of that. Many of the state’s marijuana users have stuck with the untaxed or much-lesser-taxed pot they get from black market dealers or unregulated medical dispensaries – limiting how quickly product moves off the shelves of legal stores.

“Every grower I know has got surplus inventory, and they’re concerned about it,” said Scott Masengill, who has sold half of the 280 pounds he harvested from his pot farm in Central Washington. “I don’t know anybody getting rich.”

Officials at the state Liquor Control Board, which regulates marijuana, aren’t terribly concerned.

So far, there are about 270 licensed growers in Washington – but only about 85 open stores for them to sell to. That’s partly due to a slow, difficult licensing process; retail applicants who haven’t been ready to open; and pot business bans in many cities and counties.

The board’s legal pot project manager, Randy Simmons, says he hopes about 100 more stores will open in the next few months, providing additional outlets for the weed that’s been harvested. Washington is always likely to have a glut of marijuana after the outdoor crop comes in each fall, he suggested, as the outdoor growers typically harvest one big crop which they continue to sell throughout the year.

Weed is still pricey at the state’s pot shops – often in the $23-to-$25-per-gram range. That’s about twice the cost at medical dispensaries, but cheaper than it was a few months ago.

Simmons said he expects pot prices to keep fluctuating for the next year and a half: “It’s the volatility of a new marketplace.”

Colorado, the only other state with legal marijuana sales, has a differently structured industry. Regulators have kept a lid on production, though those limits were loosened last fall as part of a planned expansion of the market. Colorado growers still have to prove legal demand for their product, a regulatory curb aimed at preventing excess weed from spilling to other states. The result has been more demand than supply.

In Washington, many growers have unrealistic expectations about how quickly they should be able to recoup their initial investments, Simmons said. And some of the growers complaining about the low prices they’re getting now also gouged the new stores amid shortages last summer.

Those include Seitz, who sold his first crop – 22 pounds – for just under $21 per gram: nearly $230,000 before his hefty $57,000 tax bill. He’s about to harvest his second crop, but this time he expects to get just $4 per gram, when he has big bills to pay.

“We’re running out of money,” he said. “We need to make sales this month to stay operational, and we’re going to be selling at losses.”

Because of the high taxes on Washington’s legal pot, Seitz says stores can never compete with the black market while paying growers sustainable prices.

He and other growers say it’s been a mistake for the state to license so much production while the rollout of legal stores has lagged.

“If it’s a natural bump from the outdoor harvest, that’s one thing,” said Jeremy Moberg, who is sitting on 1,500 pounds of unsold marijuana at his CannaSol Farms in north-central Washington. “If it’s institutionally creating oversupply … that’s a problem.”

Some retailers have been marking up the wholesale price threefold or more – a practice that has some growers wondering if certain stores aren’t cleaning up as they struggle.

“I got retailers beating me down to sell for black-market prices,” said Fitz Couhig, owner of Pioneer Production and Processing in Arlington.

But two of the top-selling stores in Seattle – Uncle Ike’s and Cannabis City – insist that because of their tax obligations and low demand for high-priced pot, they’re not making any money either, despite each having sales of more than $600,000 per month.

Aaron Varney, a director at Dockside Cannabis, a retail shop in the Seattle suburb of Shoreline, said stores that exploit growers now could get bitten in the long run.

“Right now, the numbers will say that we’re in the driver’s seat,” he said. “But that can change. We’re looking to establish good relationships with the growers we’re dealing with.”