Washington found itself facing a problem it hadn’t anticipated: way too many wannabe legal pot growers.
The solution state officials arrived at Wednesday was to cut way back on the number of licenses it would initially issue and to reduce the amount of growing space for each license.
In a unanimous vote bound to frustrate some applicants, the state Liquor Control Board limited a grower to just one license instead of the three initially allowed in rules. The board also reduced the amount of growing space for each license by 30 percent. Instead of the largest farms being 30,000 square feet, they will now be 21,000 square feet.
State officials called it the best of their options, considering they had capped overall farm space at 2 million square feet to meet initial consumer demands and applicants were seeking more than 35 million square feet.
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“I looked at alternatives offered and they are much worse,” said board member Chris Marr.
That appears to be the case, said attorney Robert McVay, who represents pot entrepreneurs. But McVay predicted some of his clients still would be understandably frustrated and even outraged, particularly those who already had invested in space enough for 100,000 square feet of growing.
“Now they feel the rug is pulled out from them,” he said.
Entrepreneur Chris Kealy said growers should have seen this reduction coming once it became clear that the Liquor Control Board (LCB) was inundated with 2,858 growing applications by late December. Quick math showed that the state needed to make some dramatic adjustments to deal with the glut of growers.
Kealy said pot merchants need to be flexible because the state is regulating the production and sale of marijuana in a way that’s never been done before. It’s going to be a long and uncertain process, he said. “If you didn’t know that already, you got the memo today.”
The state set the 2 million-square-foot cap based on an estimate that it could capture 25 percent of the total pot market in the first year of a legal recreational system.
When the flood of applications came in, officials considered their options.
They didn’t want to dramatically expand the cap, said state marijuana project director Randy Simmons, because the federal government wants a tightly controlled market. A big expansion in the cap might lead the feds to fear that legal pot would be diverted to other states, one of the chief concerns of the Obama administration.
The state could have just licensed the first applications that came in until it hit 2 million square feet and then turned everyone else away. But that would’ve meant just licensing about 200 businesses and shutting out more than 2,000 others. Simmons and Marr said that went against the spirit of Initiative 502, which sought to move as many growers as possible from the illicit to the legal market.
A third option was to reduce the square footage for all applicants proportionately. But that would have left entrepreneurs without roughly 10 percent of the space they sought, which officials thought impractical and unacceptable.
Simmons said 26 percent of the applications already reviewed by the board failed to pass muster because of improper location or inadequate financing. He expected that rate to rise to 30 percent as the review continued.
That would put the state on pace for roughly 11 million square feet of farms, Simmons said, calling that a manageable amount. The growing cap is expected to be raised as the market takes off.
State officials also believe the legal market might be bigger than first anticipated because the state Legislature now appears likely to come up with new rules for the largely unregulated medical-marijuana system that will steer many patients into recreational stores.
Marr noted that Colorado had reported that 50 percent of the entrepreneurs in its highly regulated medical-marijuana system had failed not long after opening. He also said most Washington applicants weren’t planning on growing at their maximum allotted space at the outset. He estimated that the state would likely end up with about 5 million square feet of farms by the end of the market’s first year — an acceptable target.
Licenses to be issued in March
Simmons said the first growing licenses would be issued next month, but it would take many months for licensing officials to conduct background, residency and financial checks on all the applications.
It generally takes growers about three months to get plants from seedlings through harvest. Calling herself an optimist, LCB Chair Sharon Foster predicted the first retail stores would open in early June.
More than 900 applicants sought multiple licenses, according to Simmons. Those entrepreneurs can withdraw their other applications and get their $250 fee refunded. Or they can place their applications on a hold status for up to a year or until the board decides more licenses are needed.
Kealy said he is developing a 100,000-square-foot growing facility in Kent. He will now try to lease his space to others. “Smart business guys knew this was coming and had to be prepared to sublet,” he said.
Marr agreed. “We said all along this is a malleable process,” he said.
McVay said he’d likely be advising frustrated clients that the liquor board “made the best of a bad situation.”
In another unanimous vote, the board decided to license businesses in cities and counties with bans and moratoria on legal pot merchants.
After Attorney General Bob Ferguson advised the LCB that cities and counties could lawfully block pot business, some wondered if the board would reallocate licenses it had designated for those resistant communities to more welcoming ones. Seattle City Attorney Pete Holmes, a sponsor of Initiative 502, implored the board to allow more than the allotted 21 retail store licenses in the Emerald City.
Foster noted that Seattle had 20 state liquor stores before voters privatized the market — and those stores served some 1,500 restaurants as well as individual consumers. “We won’t reallocate,” Foster said. “We’re going to see how 21 goes,” Foster said.
Bob Young: 206-464-2174 or email@example.com
On Twitter: @potreporter