Marijuana evolves into legal industry

OLYMPIA—When Logan Bowers opened his marijuana retail store Seattle Hashtag in April 2015, he entered an arena far different from his tech-industry background.

Bowers, co-owner of Hashtag and president of the Cannabis Organization of Retail Establishments (CORE), had the same task as other marijuana license holders in the state: bring an industry relegated to street corners and sidewalks into a legal and regulated retail environment.

“We get a lot of local traffic,” Bowers said. “A lot of folks kind of walking by who are like, ‘What’s this about?’ And they come in and checked it out and realize we’re just a normal business.”

Since the voter-approved Initiative 502 — which earned 56 percent of the popular vote in November 2012 — was implemented, the state Liquor and Cannabis Board has issued more than 1,000 licenses to retailers, producers or processors of marijuana under the I-502 system. The LCB issues up to a dozen new licenses each week.

“This is not like selling milk,” said Brian Smith, spokesperson for the LCB. “This is selling a product that is illegal at the federal level.”

Smith said that after a few years of uncertainty over how the state would navigate legalization, it has become a robust industry.

“It’s only going to continue to grow,” Smith said.

The next step in the process in the eyes of lawmakers, the LCB, and marijuana license holders, is the decline and elimination of illegal sales of marijuana in the state.

A 2015 report by the BOTEC Analysis Corp. found that, at best estimates, 28 percent of marijuana sales in the state happen illegally. The corporation is a California-based research and consulting firm that develops policy solutions on crime, justice and drugs.

A late bill this legislative session by Rep. Chris Hurst, D-Enumclaw and Rep. Cary Condotta, R-Wenatchee, is trying to combat the black-market sales of marijuana in the state, and has been retained in its present status since the Legislature entered special session on Friday.

House Bill 2998 would reduce the state tax on marijuana from 37 percent to 25 percent, and would preempt municipal ordinances and regulations that would ban the operation of licensed marijuana retailers, unless the city already bans retail marijuana activity or use. HB 2998 has been reintroduced for consideration during the special session that began Friday.

“This is not an advocacy that you should use the drug,” Hurst said at a special hearing on the bill earlier this session. “We want to have a safe, tested, legal product for people who want to use it.”

Hurst initially proposed reducing the tax from 37 to 25 percent with House Bill 2347 earlier in the session. That bill also had support from those within the marijuana industry. It, too, has been reintroduced for consideration during the current special session.

Proponents of the proposal say a decreased tax would help make prices of marijuana in the state competitive with black-market counterparts.

Bowers said a typical gram of marijuana in his store costs $15, whereas high-quality drug dealers sell the same amount for about $10. If the tax was reduced to 25 percent, he argues he can probably drop his price to $12 for a gram.

Hurst’s initial proposal to reduce the tax didn’t gain traction earlier, in part because the bill’s fiscal note estimated it would cost the state $87 million in revenue. Others say reducing the tax on retail prices would lead to an increase in state revenue because more people would buy from legal retailers.

Under HB 2347, the state is projected to receive in 2017 an estimated $268.5 million in excise tax revenue from marijuana sales. If the tax rate is reduced to 25 percent, the revenue forecast drops to $181.4 million. HB 2998 has a similar revenue forecast based on projected $720 million in retail sales.

By fiscal year 2021 retail marijuana sales are predicted to reach $971.7 million, producing a tax pool for the state of $360 million based on the 37 percent rate. At a 25 percent tax rate, state revenue would drop $116.6 million in 2021.

Hurst’s and Condotta’s new proposal, in addition to lowering the tax, disallows local bans on legal marijuana sales, unless a ban is already in place. State statutes would preempt local ordinances.

Bans and moratoriums in cities have been cited as undermining the state’s ability to continue implementation of I-502, while also fueling the illegal industry.

“It’s fair to say that there are marijuana sales going on in every community, whether or not you choose to have it tightly regulated and have it legal,” Smith said. “There’s still going to be a black market going on at the local level, even if you have a ban.”

Representatives of some cities, however, contend municipalities deserve the right to decide for themselves how to manage this new industry.

Candace Bock of the Association of Washington Cities said it’s wrong to think that just because the initiative passed, that widespread support for legal pot sales exists throughout the state. Even with the bans, she said, people still have reasonable access to retail marijuana.

“What we’re trying to encourage is more flexibility around that local control,” Bock said at an earlier hearing on the measure. “These bans are not creating a significant access problem.”

The fight to find ways to keep the young marijuana industry growing while decreasing illegal sales is predicted to continue in future legislative sessions.

According to retailers like Bowers, who supports the tax reduction, squeezing out the black market will lead to more jobs within the legal industry.

(This story is part of a series of news reports from the Washington State Legislature provided through a reporting internship sponsored by the Washington Newspaper Publishers Association Foundation. Reach reporter LaVendrick Smith at lavendricksmith@gmail.com; follow him on Twitter: @LaVendrickS)