| Medical or Recreational | Legal Since | Requires Cards | Accepts other States Cards | Fee | Dispensary System |
| Medical & Recreational | 1998, 2014 | No, but card authorizes patients to possess three times as much as recreational users. | Medical: No; Recreational: Yes | N/A | Yes |
Medical marijuana was legalized in Washington in 1998 with the approval of ballot Initiative 692 (I-692) also known as the Medical Use of Marijuana Act, passed by 59% of the voters. Recreational marijuana was legalized with the passage of Initiative 502 (I-502) in November 2012 by 56% of the voters. The first recreational licenses were not issued until 2014.
Legal Consumption
Beginning in July 2014, adults age 21 and older are permitted to possess, use and purchase recreational marijuana from a licensed retailer. Producing or selling marijuana without a license and public consumption of marijuana remain illegal.
With the recent passage of Senate Bill 5052 (SB 5052), beginning July 1st, 2016 medical marijuana patients will be subject to the same rules faced by recreational buyers, with one important exception: patients who voluntarily register with the state to attain medical cards will receive special tax breaks and will be allowed to possess three times as much marijuana as recreational users. To join the registry, patients must go to a medically endorsed store where a staff member will enter into a database their name and how much marijuana a doctor has authorized them to use. Patients must then pay $1 for a “recognition card” that features a photo, the amount of marijuana the patient is allowed, the doctor who recommended it, and an identification number.
Under current laws, patients of any age who possess valid documentation from their physician affirming that they suffer from a qualifying condition may legally possess medical marijuana. Qualifying conditions include Cachexia, cancer, HIV/AIDS, Epilepsy, Glaucoma, intractable pain, Multiple Sclerosis, Crohn's Disease, Hepatitis C, nausea, or chronic renal failure can legally possess medical marijuana.
Medical authorization cards are not (and will not be) legally required. Out-of-state cards or doctor recommendations are not accepted in Washington.
Possession Regulations
Under the recreational law, persons over 21 years of age may purchase and possess up to one ounce (28 grams) at any one time. Washington law does not sanction personal marijuana cultivation for recreational use. All recreational marijuana must come from a licensed retail store and cannot be sold or given to others.
Currently, under I-692, a qualified patient or designated provider may possess up to 24 ounces of useable marijuana or 15 marijuana plants, or participate in a collective garden. It is illegal under Washington law to sell or give away medical marijuana.
Following the enactment of SB 5052, registered patients with authorization cards will be allowed to buy and possess (at once) 3 ounces of dry marijuana, 48 ounces of marijuana-infused solids, 216 ounces liquid and 21 grams of concentrates. Registered patients will also be able grow up to six plants at home.
For qualified patients who do not register with the state, purchase and possession limits will be same as those for medical marijuana. However, unregistered patients may only grow up to four plants and possess up to six ounces from those plants.
Regulatory Authority
The industry is currently regulated by the Washington State Liquor and Cannabis Board (LCB). Initially, the LCB set a cap of 334 recreational marijuana stores statewide, distributed according to local population. However, this was changed with the merger of the medical and recreational markets. The LCB began accepting applications on October 12, 2015, and as of mid-November, reported that it had received 962 retail marijuana licenses. There is currently no limit on the number of retail stores that will be licensed, although single licensees will be limited to three licenses.
In preparation for the integration of both medical and recreational dispensaries under the same regulatory framework created by I-502, the state Department of Health issued emergency medical marijuana rules, effectively immediately, to build upon existing LCB regulations for producers, processors, retailers, and third-party labs. These new regulations, which contain specifications for THC and CBD content, mandate testing for pesticide and toxins, and provide guidelines for labeling, will be jointly administered by the LCB and the DOH.
Currently, there is also a regulatory process established for local government agencies to object to the proposed issuance of a marijuana business license to a specific individual, or for a specific location within their jurisdiction.
Previously, the only legal medical marijuana in Washington was grown by patients with medical authorization or as part of a collective garden. Dispensaries were operating in legal limbo.
Senate Bill 5052, signed into law in late April 2015, rolled the medical marijuana industry into the recreational industry. According to law, dispensaries and collective gardens were required to obtain licenses from the state and meet a host of regulations by July 1, 2016 or shutdown. As of July 1, 2016, patients now have to buy their medicine from stores overseen by the LCB, which is charged with granting "medical marijuana endorsements" to retailers who decide to specialize in that market.
Dispensary Restrictions
A cannabis store cannot be established within 1,000 feet of an elementary or secondary school, playground, recreation center or facility, child care center, public park, public transit center, library, or game arcade that allows minors to enter. Local authorities will be notified of any proposed issuance of a marijuana business license and will have the opportunity to object.
Applicants for dispensary licenses must prove a residency of at least three months in the state of Washington. Those convicted of a felony in the past 10 years are ineligible for a cannabis business license. Likewise, those convicted of a gross or simple misdemeanor involving liquor or drugs are also disqualified.
Vertical Integration
Washington prohibits vertical integration. However, of the three licenses: marijuana producer, marijuana processor, and marijuana retailer, a licensee may only simultaneously hold both a producer and a processor license. Thus, I-502 prohibits a producer or processor from being a retailer as well. All licenses are granted by the LCB.
A 37% excise tax is levied at the point of sales for recreational marijuana purchases. Marijuana products sold to patients with a valid recognition card that are sold through marijuana retailers with a valid medical endorsement are exempt from this tax. Also, sales of high CBD products and low THC products are exempt from this sales tax when sold through marijuana retailers with a valid medical endorsement.
The tax replaces a previous levy of 25% at three specific points in the supply chain: when producers sell to processors, when processors sell to retailers, and when retailers sell to end consumers, essentially translating to a 75% tax on marijuana products. The tax cut represents a significant decrease in financial burden for recreational marijuana consumers, though a significant increase on medical patients who previously did not pay tax. In addition to the excise tax, regular state and local sales taxes continue to apply to retail marijuana purchases, although all sales taxes other than the 37% excise tax are waived for qualifying medical patients.
I-502 establishes a license application fee at $266 and a $1,062 renewal fee for each of the three marijuana licenses - producer, processor, and retailer.
| 2014 | 2015 | 2016 Forecast | 2020 Forecast | |
| Total Medical Marijuana Sales | $236,818,908 | $219,517,693 | $71,505,784 | $0 |
| Sales Growth | 1% | -7% | -67% | n/a |
| Total Recreational Marijuana Sales | $40,862,840.00 | $352,485,579.00 | $676,140,959.00 | $1,467,892,265.00 |
| Sales Growth | N/A | 763% | 92% | 21.38% (2016-2020 CAGR) |
Growth in 2016 continues to be driven by the merging of the medical and recreational markets, in addition to organic market growth encouraged by the lifting of restrictions on the number of business licenses to be issued. The market is still considered to be in the early stages of development and further expansion is expected as new licenses are issued and new businesses establish themselves to meet the state’s significant demand. With the convergence of the medical and recreational markets, the total market size is expected to swell to over $676 million, and continue at roughly 20% growth per year, surpassing $1.4 billion by 2020.
Flower
Flower continues to be the dominant product category in the legal market, comprising a 69% market share. However, flower's market share in both segments is expected to decline through the forecast period. This is due to innovative products in the edible and concentrate segments that will enable them to capture increasing market share by catering to some consumer’s preferences for healthier, less conspicuous, or more convenient products.
Despite an estimated decline in market share, the total dollar value of flower sales in the recreational market is expected to increase from $471 million in 2016 to over $859 million in 2020 with an estimated Compound Annual Growth Rate (CAGR) of 16.23% from 2016 to 2020.
Edibles
Edibles are expected to exhibit steady growth, with market share increasing from about 14.6% in 2016 to around 19% in 2020 . This is due to the variety of products within this product category which cater to different consumer tastes and consumption preferences. Much of the growth of this market segment will be driven by consumers who prefer eating or drinking rather than smoking as their method of consumption, viewing it as healthier, less conspicuous, and/or more convenient.
Growth in the edibles market looks even more impressive when viewed in dollar value terms with an increase in the recreational market from about $98 million in 2016 to more than $273 million in 2020, a CAGR of 29.09%.
Concentrates
Concentrates are expected to exhibit tremendous growth, increasing from 15.1% to 21.3% of the market by 2020. Market growth looks even more phenomenal in dollar value terms, moving from $102 million in 2016 to $312 million by 2020, a CAGR of over 32.25%.
High prevalence and growth in the market can (in part) be attributed to a desire among more health conscious consumers who want a reliable method of delivery that does not involved the potential health risks and strong odor associated with smoking flower. Concentrates can also deliver more intense highs due to their high THC content. The potency, convenience, and odorless vapor of many concentrates will make them an attractive alternative to traditional flower.
Other
Topical products (creams, lotions, etc.), THC pills, tinctures (liquid cannabis extracts) and so forth are growing in popularity among marijuana users across the nation. However, all these products combined to make up only 0.66% of the overall market in 2016 and are forecasted to increase only slightly to 1.52% by 2020. In dollar value terms, these products are expected to increase from approximately $4.4 million in 2016 to $22.3 million by 2020, a CAGR of approximately 49.72%.
Production influence on unit prices
The industry has generally recovered from a severe supply glut that heavily impacted the market in 2014 and drove down prices. Prices have nevertheless continued to decrease slightly throughout 2015 and into 2016, although lower prices in the recreational market can also be seen as the result of the adoption of a single 37% excise tax, which is approximately 50% lower than the previous tax system in which marijuana was taxed 25% at three separate levels in the supply chain.
The LCB’s removal of restrictions on the number of licenses issued to marijuana business is expected to maintain downward pressure on prices, as both the overall supply of marijuana increases and price competition emerges among an increasing number of operational dispensaries.
Tax policy influence on unit prices
In 2015, Washington revised its marijuana tax structure in which producers, processors, and retailers were each taxed 25%. Instead, a single 37% tax is now levied on the consumer at the point of sale. Accordingly, marijuana prices have continued to fall throughout 2016, from an average price of $390 per ounce in March 2015 to $260 per ounce in July 2016.
Price competition from the opening of the recreational market in Oregon is also seen as a factor in the market’s fall in prices, particularly in Vancouver which is right across the border from Portland.
Number and size of grow operations
As of July 15, 2016, there were 948 active licenses for recreational grow operations in the state which have been able to meet the demand of the market in Washington. This represents a massive increase from the 535 grow operations registered in 2015, and is seen as a result of previously unlicensed medical operations receiving recreational licenses as both markets converge.
Although establishment of new grow operations is expected to continue in the short-term, the market will likely oversaturate. Falling prices and supply that outpaces demand is then expected to curb or even reverse growth in the number of marijuana cultivators in the future.
Regulations on grow operations
As of August 2016, the state has allotted a total of 12.3 million square feet of land to be used for growing marijuana. Quantities have been broken down into three tiers:
Tier One: Less than 2,000 square feet
Tier Two: 2,000 square feet to 10,000 square feet
Tier Three: 10,000 square feet to 30,000 square feet
Indoor vs. outdoor
Grow operations may take place indoors in a fully enclosed, secure facility or rigid greenhouse, or outdoors in non-rigid greenhouses or an expanse of cleared, fully-enclosed ground obscured from public view.
Adequacy of supply
The market has generally recovered from the significant supply volatility it experienced in 2014 and 2015 following the opening of the recreational market. During this time period the market underwent shortages, spikes in prices, and then a severe supply glut. Throughout 2016, supply has generally been stable, though exhibiting a noticeable increase in the number of total licensed cultivators following the merge of the medical and recreational markets and the lifting of restrictions on the total number of business licenses available. This increase in supply is reflected by a parallel decline in the average price of marijuana across the state. With the current rate of increase in the number of licensed cultivators, and a lack of restrictions on the number of licenses issued in the future, another supply glut is likely in the future. Subsequently, the market is not expected to experience shortages of supply anytime soon.
Major players
The five top grossing companies in the cultivation space as of July 15, 2016 (in order of gross sales) were New Leaf Enterprises, Mean the Green, The Happy Crowd, OG Farms, and Double Dutch, accounting for over $2 million in gross sales. Given that total sales for the top five companies in 2015 were only $2.4 million, this indicates sales for cultivators in 2016 growing to nearly twice the amount for 2015. However, competition is also noticeably increasing, as the total sales amounts for the top five companies differ by only thousands of dollars. Furthermore, of the top five cultivators listed above, only The Happy Crowd was among the top five in 2015.
Number of processing facilities
The number of licensed processing facilities in the state has grown exponentially over the past few years, from only 397 reporting sales in July 2014 to 506 in April 2015 and up to 907 as of July 2016.
The large jump in the number of license holders is seen as a result of previously unlicensed firms receiving licenses under the new I-502 regulations.
Regulations on processing
Under I-502, a licensee may hold both a producer and a processor license simultaneously, but a producer or processor cannot also be a retailer. Marijuana processors must package marijuana-infused products in child resistant packaging and may not package or label them in a manner that makes them especially appealing to children. Marijuana-infused products and their labels must be submitted to the LCB for approval. All marijuana-infused products must be homogenized to ensure uniform distribution of THC throughout the product.
Size of operations
Due to the unique nature of the Washington market with regards to licensing, the processing market is characterized by a large number of smaller, independent companies with several large ones dominating the market.
Major players
As of July 2016, the top two largest processors by gross sales in Washington were Northwest Cannabis Solutions, with over $8.7 million in sales for 2016, followed by Grow Op Farms, with $7.5 million in sales. No other processor had yet passed the $3 million mark. Northwest Cannabis Solutions is the processor behind three major Washington brands - Magic Kitchen, Evergreen, and EZ Vape, while Grow Op Farms is the parent company of dominant brand Phat Panda. Rounding out the top five were Artisan Cannabis Company, BMF Washington, and Harmony Farms.
There is no large-scale independent distribution system in Washington. Grow operations usually work directly with recreational shops for sourcing or distributors associated with each individual brand of edibles or concentrates. No state agency regulates distribution under the state’s medical marijuana laws, though there are proposals for giving the LCB such authority.
Number of QA operations
As of July 2016 there were 15 licensed marijuana testing facilities in the state of Washington. However, this number is expected to increase significantly in the near future as medical marijuana products are now required to undergo testing under the regulations of I-502. Furthermore, given that the number of dispensaries no longer faces limits, demand for testing is sure to rise, ensuring quality insurance labs will proliferate at accelerated rates and represents an excellent investment opportunity.
State QA requirements
Rigorous quality assurance testing is required by the state under the Washington Administrative Code (WAC) Section 314-55-102 including analysis on moisture content, potency analysis, foreign matter inspection and microbiological screening.
Major players
As in all states with a degree of legalized marijuana use, state chains of laboratories have yet to be developed. However, multi-state chains are starting to become a reality. The most notable example of this is Steep Hill, the testing lab native to California and owned by Harborside Health Founder Steve Deangelo. The company now has labs in California, Colorado, Washington, New Mexico and Nevada with another lab expected to open in Oregon in 2016.
Dispensary systems
Washington has a nascent recreational dispensary system that has only been in place since the middle of 2014. Previously, the number of retail dispensaries was capped at 334. However, given recent developments regarding the merging of both medical and recreational dispensaries under a single licensing system, the LCB announced plans to remove any specific limits on the number of licenses it will grant. Under the new system, dispensaries would carry both medical and recreational marijuana products. Existing medical marijuana dispensaries may be grandfathered in under the new system, given they meet certain requirements such a history of consistent tax payments.
Lounges
As state law prohibits the public consumption of marijuana, lounges are not present in Washington's recreational market. The LCB even drafted a rule specifically banning marijuana use on the premises of any establishment with a liquor license. So far the only establishments having any luck establishing marijuana use areas are hotels, which may allow marijuana in their designated "smoking rooms".
Number and size of operations
While the Washington dispensary system is characterized predominately by independent stores, a relatively small number of dispensaries account for a large part of statewide sales. In 2015, the top five dispensaries by sales accounted for over $55 million, or 20% of all retail revenue in the state. While in 2014, the highest-grossing dispensaries were almost exclusively located near the Oregon border in Vancouver, in 2015, dispensaries from other cities such as Seattle and Spokane have entered the top five, a trend which has continued into the first half of 2016.
The incorporation of the medical system into the recreational system is expected to help drive sales at existing recreational shops, helping to fuel expansion and/or acquisitions among shops with a successful business model.
| Category | For Calendar Year 2016 (unless noted) |
| Total Population | 7,231,973 |
| Medical Patients (estimated) | 130,994 |
| Estimated Adult Marijuana Consumers | 930,850 |
| Heavy | 272,688 |
| Moderate | 144,879 |
| Occasional | 513,282 |
| # of university students | 371,971 (2013) |
| Population 21-35 | 1,579,149 |
| Population 36-50 | 1,452,283 |
| Population 51-64 | 1,475,474 |
| Population 65+ | 1,008,098 |
| Prevalence of HIV/AIDS (Rate per 100,000) | HIV 189.7 / AIDS 113.5 (2011) |
| Prevalence of Cancer | 329,633 (2014) |
| Prevalence of Glaucoma | 52,950 (2012) |
University Students
Despite marijuana´s legalization in the state of Washington, college officials have chosen not to change school policies regarding its use and possession on campus citing the federal Drug-Free Schools and Communities Act. The principal reason for not changing campus policies is the fact the universities have a stake in federal research dollars and their students receive financial aid. In order to not lose this funding the campuses and students must abide by federal law. Likewise, most of the students on college campuses are under 21, which is the legal age for use and possession of recreational marijuana.
While the Seattle City Attorney has said police will no longer pursue people who use small amounts of marijuana, University of Washington police will continue to cite students for code of conduct violations. Likewise, Washington State University, Western Washington University and Seattle University students caught using marijuana on campus will be subject to discipline under their student codes of conduct.
However, even though it is prohibited to do so, there continues to be undeniable interest among students in using marijuana on campus. According to Seattle University´s student newspaper, The Spectator, a 2013 survey found that 24% of Seattle University students had used marijuana in the last 30 days.
As of 2013, Washington had 371,971 students enrolled in universities out of a total population of 6,971,406 people, equaling 5.3% of its population. This is about average in terms of number and proportion of the population. Though marijuana may not have a large market among university students when considering the limitations set forth by their campuses, a national study found that one-third of Washington's young adults ages 18 to 25 (whether enrolled in universities or not) have used marijuana in the past year. This age demographic is expected to continue to present great demand for marijuana.
Senior Citizens
Out of a total estimated population of 7,134,776 in 2015, the estimated population ages 65 and over in Washington is 1,041,221(or 14.6% of the population) which is a relatively high proportion when compared to other states. Those who fall in this age group are more likely than younger members of the population to suffer from medical conditions that qualify them for medical marijuana use, such as Glaucoma and Alzheimer´s Disease.
Among those 65 or older in 2014, 97,000 (or 10.5%) suffered from Alzheimer´s Disease. These patients could arguably qualify for medical marijuana use in the state. While Senate Bill 5052 does not allow explicitly for Alzheimer´s patients to qualify for medical marijuana, it does allow patients with terminal or debilitating medical conditions to use medical cannabis if they may benefit from its use in the judgment of their health care professionals.
Among all people over 40 in 2012, 52,950 (or 1.8%) suffered from Glaucoma, a qualifying medical condition for the use of medical marijuana in Washington State.
Though Washington has a relatively large elderly population and many of them suffer from medical marijuana qualifying conditions, the market for marijuana among those 65 and over remains quite minimal. Per the analysis of the results of the National Survey on Drug Use and Health (NSDUH) from the Substance Abuse and Mental Health Services Administration (SAMHSA), very few users (<1%) of those surveyed nationally in the age 65+ demographic were using marijuana with any frequency. This conclusion was supported by our interview of a Seattle dispensary representative who revealed that the majority of dispensary customers were between ages of 30 and 50.
Despite its potential in this market, medical marijuana among the elderly does not seem to have garnered much popularity.
Washington´s population does not seem to be at particularly high risk for many of the conditions commonly treated by medical marijuana. The prevalence rates of cancer, Glaucoma, Alzheimer´s and HIV-AIDS in the state are all average or below-average.
Cancer can be found in 4.2% of the population (2014), which is the average country-wide as well.
The prevalence rates of HIV and AIDS are both relatively low in Washington compared to other states researched with 2011 rates of 189.7 and 113.5 per 100,000 people, respectively.
Medical marijuana may have trouble succeeding in Washington, not only because its populace has low rates of these illnesses, but because medical marijuana will soon be subject to the same regulations as recreational marijuana in the state. Beginning in July 2016, medical marijuana will only be sold in recreational stores with "medical endorsements". Furthermore, recent legislation has added more challenges for patients (as discussed below).
Medical authorization cards are not legally required in Washington, however doctor recommendations are not considered difficult to obtain. Beginning in July 2016, those who obtain a "recognition card" (for the price of $1 with valid documentation from a physician affirming one suffers from a debilitating condition) and register with the state marijuana database will receive several benefits. For example, patients who are entered into the database will be able to purchase up to three ounces of useable marijuana (three times the limit for non-patients), will be exempt from state sales taxes, and could potentially purchase medically necessary marijuana even if under the age of 21 (the minimum age for recreational consumers).
The law states the only requirement for health care providers to offer valid documentation to medical marijuana patients is he or she be licensed in Washington. The Department of Health does not keep information on health providers who are known to recommend marijuana as a medication to patients. Thus patients may obtain this documentation from their own licensed primary care provider or from a marijuana clinic with relative ease.
The limiting factor is the requirement to join the state registry in order to qualify for a recognition card. Registries are controversial because the federal government has been known to access them in order to prosecute people for marijuana use. Therefore, registration for medical marijuana will be a double-edged sword for many who were previously enjoying the use of medical marijuana anonymously. This new requirement may dramatically reduce the number of medical marijuana patients in the state.
Washington is historically a liberal state. The state voted for democratic congress members in both the 2010 and 2012 election cycles, and voted for a democratic president by a wide margin in 2012 (56.2% voted for Democratic President Obama). This was the same year Washington legalized marijuana for recreational use and approved same sex marriage. Its residents have voted for the Democratic nominee in every presidential election since 1988, and Washington has elected a Democratic governor for most of the last 30 years.
According to Pew Research Center, in 2014 Republicans continue to be far less likely than Democrats to favor the legalization of marijuana (39% vs. 63%) and presumably disapprove of its use as well. Its political learnings might make Washington an ideal location for marijuana markets to flourish, but the stark political divide between conservative east Washington and the liberal west must also be considered when weighing local attitudes towards marijuana in this market.
Roughly two-thirds of Washington residents live on the wealthier, urban west side of the state, which is home to Microsoft, Amazon and the state’s largest public research university. The east side is rural and its major industries are farming and lumber. It is assumable the third of the population located in conservative east Washington will likely be much less amenable to the sale and use of marijuana in their communities than their western neighbors.
The Washington market has demonstrated significant growth in terms of the number of dispensaries now operating. What had been a highly concentrated market with a small number of dispensaries accounting for a large portion of sales is now characterized by a more even distribution of sales. The top ten dispensaries now account for only 15% of revenue. Most dispensaries continue to operate only one storefront, although increasing numbers of three-store chains remain a strong possibility for the future. The restriction of licenses to any individual to three dispensaries prevents the establishment of large scale chains of the sort that are developing in Colorado.
Cultivation operations in Washington State have also shifted towards a more even distribution of sales as the number of license holders has increased and competition has grown stronger. As of July 2016 no single producer accounted for more than 3% of total sales.
The market in Washington continues to be characterized by many small and midsize in-state operations. Regulations limiting investment to Washington State residents limits direct, large-scale investment by out-of-state businesses.
However, a number of non-Washington manufacturers, such as Edipure and the Venice Cookie Company, have entered the market by partnering with local distributors. Similar indirect investment is expected to continue in 2016. As of July, Nevada manufacturer Strainz had raised $8 million to launch operations in Washington, Colorado, and Nevada, while Oregon-based Golden Leaf Holdings announced it had raised $15 million to enter the Washington market.
Vertical integration in Washington is prohibited. As a result, companies have specialized in cultivation, processing, retail sales or quality assurance testing. However, as previously stated, a licensee may simultaneously hold both a producer and a processor license.
The edibles market in Washington is dominated by well-established brand name manufacturers that specialize in unique products. Out-of-state edibles manufacturers must partner with local companies who produce and distribute their products. As of July 2016, the majority of popular brands in Washington belonged to in-state companies, as opposed to out-of-state companies who distribute their products through licensing deals with in-state producers. A notable exception is the California-based Venice Cookie Company, whose products are distributed in Washington through partner firm Evergreen Herbal.
Washington differs from other US markets in that flower is also sold as a branded product, a result of the state’s restrictions on vertical integration. Popular edibles and concentrates brands, such as Northwest Cannabis Solutions and Phat Panda, also produce branded and packaged flower and pre-roll.
Magic Kitchen, the top-ranked edibles brand in Washington, is the edibles brand of Northwest Cannabis Solutions. Northwest Cannabis Solutions is a large-scale manufacturer that also produces concentrates, vape pens, and other infused products. Two popular categories of the Magic Kitchen line are “Pebbles”, infused hard candy, and “KoKo Gemz”, chocolate bites. Other infused products include caramels and cookies. The Magic Kitchen line accounted for 9.83% of the market as of July 2016.
Evergreen Herbal is the Washington-based “sister company” of California’s Venice Cookie Company. Accordingly, Evergreen Herbal sells many Venice Cookie Company products (such as the popular 420 Bar) under its own label. Besides chocolate bars, it specializes in lemonade and honey sticks, as well as a full line of tea products. Evergreen Herbal accounted for 8.86% of the edibles market as of July 2016.
Zoots, a Washington-based maker that sells lemon drops, hard candy, chocolate bites, and energy drinks, claims their trademarked “Cypress Extraction Method” guarantees a pure, contaminant-free product. The Zoots brand is owned by Washington’s Db3 Inc., who became the first company in the state to be granted both cannabis producer and processor licenses (meaning the company can grow its own flower for use in their edibles). Zoots sells exclusively to the recreational market and accounts for 7.64% of edibles sales.
Phat Panda is the top ranked manufacturer in both the concentrates and others categories, accounting 4.03% and 4.26% of both markets, respectively. Phat Panda is a grow operation that specializes in premium strains, such as its popular Golden Pineapple, Blue Dream, and Panda OG strains. They sell these strains as flower and pre-rolls, and as concentrate through their Sticky Frog product line. Phat Panda has also entered the edibles market with its recent development of “Hot Sugar”, a product line featuring infused sugar in a variety of flavors.
Washington marijuana brands are generally marketed to consumers through a combination of online, social media, and print advertising. The use of social media platforms, such as Facebook, Instagram, and Twitter is most prevalent, especially among smaller businesses that may not be able to afford alternative forms of advertising. Under I502 regulations, dispensaries may not advertise marijuana products on the exterior of their premises. Likewise, marijuana advertisement is banned where visible or audible within 1000 feet of where children may gather, effectively barring cannabis-related advertising on television and radio. Nevertheless, there are no other significant restrictions on traditional forms of advertising such as print or billboards, provided the 1000-foot buffer is maintained.
The Washington market is poised for impressive growth over the forecast period. The size of the legal market in 2016 is estimated to be over $747 million, increasing to over $1.4 billion by 2020.
Most medical marijuana businesses have been able to continue operations under new recreational licenses. This has accounted for a large surge in the size of the recreational market, in addition to organic growth of the retail market. Fears market growth would be hampered by the closure of unlicensed medical businesses and a cap on the number of recreational licenses appear to have been unfounded. The removal of a limit on businesses licenses is thought to have removed artificial barriers to market growth for the foreseeable future.
Edibles sales in the overall market are estimated to grow from about $113 million in 2016 to more than $273 million in 2020 (a CAGR of 24.78% from 2016 to 2020).
Concentrates in the overall market will see tremendous growth moving from just under $114 million in 2016 to $312 million by 2020 (a CAGR of over 32.25% during the forecast period).
Topical products, THC pills, tinctures, etc. are becoming more popular among marijuana users across the nation. This “category” of products is expected to increase to over $22 million in sales by 2020 with a CAGR of 43%.
Edibles and concentrates will be the fastest growing market segments throughout the forecast period and the diversity of products within each market segment is expected to continue to grow. There will be opportunities for new companies offering novel products, especially those viewed as healthier, less conspicuous, and/or more convenient by consumers.
With the successful merger of the recreational and medical markets in 2016, as well as continued month to month growth in sales as reported by the state’s department of revenue, the Washington market continues to represent a good opportunity for Washington investors. The removal of a cap on the number of business licenses has freed the market from barriers to growth, which is expected to continue at a steady rate over the forecast period.
It is important to note that while there is room in the market for many new dispensaries, each company can only operate three dispensaries. This restriction, along with the restriction on vertical integration, allows for the development of small and mid-sized companies but no chains or large consolidated companies.
Opportunities are especially plentiful for companies in the edibles and concentrates market segments as there is potential to sell product throughout the entire state as opposed to owning a specific retail outlet. Success in the market will come to those who can effectively cut costs to keep prices competitive, implement effective branding strategies, and connect with customer preferences in possible niche markets (such as sugar-free or gluten-free edibles for the health-conscious consumer, or CBD-only product for medical patients). Thus far the competitive landscape is pretty open in terms of manufactured products in Washington with few major domestic brands and few strong multi-state brands. As a result, there is significant room for companies to break out and build a strong presence for themselves in this market.
The cannabis market in Washington has continued to exhibit steady growth despite increased competition from the opening of the new recreational market in neighboring Oregon. While sales figures for Washington dispensaries in Clark Country (along the border with Oregon) fell slightly in the latter part of 2015, revenues have since recovered. Clark County dispensaries reported sales of nearly $19 million by August of 2016, indicating they are on track to nearly double sales for 2015. Other factors that have mitigated the negative effects of competition from Oregon have been the reduction in sales taxes to a 37% excise tax, the removal of limits on the number of marijuana business licenses statewide, and a general fall in the price of marijuana due to abundance of supply. Accordingly, aside from potential overabundances of supply, the largest threat to the market continues to be the prohibition of marijuana at the federal level.
Following the merger of the medical and recreational markets under I-502, the regulatory environment remains stable. Most previously unregulated medical marijuana dispensaries have secured recreational licenses and adhere to state regulations such as required testing and product labeling.
The most significant development in the regulatory environment has been the abandonment of any cap on the number of marijuana businesses by the state’s Liquor and Cannabis Control Board, although the board has reserved the right to reinstate a cap if deemed necessary. However, the state has limited the total area available to marijuana cultivation to 12 million square feet, considered to be more than enough to supply the state’s demand.
Demand
Marijuana is relatively well accepted amongst adults in Washington (even prior to legalization) with usage rates slightly below states such as Oregon and Colorado, but significantly higher than the national average and states like California and Michigan. The most recent available estimate by the Substance Abuse and Mental Health Services Administration puts consumption rates for adults at 20.05% (one of the highest rates in the country). Further increases are possible, especially amongst occasional users (thanks to recreational legalization) and by 2020 the number of adult cannabis users in the state is expected to exceed 1.2 million. Demand is likely to continue rising, creating a solid consumer base for the legal market as prices come down and consumers become more accustomed to the idea of purchasing their cannabis legally.
Cannabis tourism continues to play a part in the growth of the state’s market. Although the advent of recreational marijuana in Oregon has reduced the number of out-of-state consumers in the southern part of the state, a number of cannabis tourism companies and cannabis-friendly lodgings cater to a significant number of visiting consumers. While cannabis businesses should certainly capitalize on cannabis tourism in the short term if possible, they are advised to plan their strategies around the domestic market and not rely upon this tourism to support their business over the long term.
While the supply of cannabis to the recreational market got off to a rocky start, its evolution is expected to be much steadier. The massive supply glut that was present in 2015 making it difficult for producers to turn a profit as evolved into an adequate supply for the growing number of dispensaries in the state, even as the number of producers reporting sales has increased from 535 in 2015 to 948 in July 2016. With the integration of medical dispensaries into I-502, cultivation from officially licensed producers will certainly need to increase significantly to keep pace with supply, but the rapidly increasing number of producers is expected to be able to meet this demand without a significant issue.
Competition in Washington is expected to continue increasing throughout the rest of 2016. The recent removal of a cap by the Liquor and Cannabis Control Board on the number of cannabis business licenses encourages more dispensaries to apply for licenses and establish operations. Most medical businesses have also been able to complete the transition into the retail market. The effects of this competition can already be seen in significantly lower marijuana prices in 2016 when compared with the same period in 2015.
Current state regulations limit businesses to three locations each, preventing the development of chains larger than three outlets, in contrast to the Colorado market where larger chains are becoming more common.