Washington State Active Legal Cannabis Landscape Analysis: Part III

Since the publication of this post, we have been alerted that our assumption that most active Tier 3 producers are not indoor may be way off.  Blaine Stum, a researcher with the Spokane Marijuana Policy Working Group, reports that according to his research so far 7 out of the 8 Tier 3’s approved before May 1 may be indoor.  We will adjust our analysis going forward, but keep this in mind for now — Dr. Corva, 7/19/2014

by Dominic Corva, Executive Director

This is the third in CASP’s ongoing analysis of Washington State Active Legal Cannabis supply.  Yesterday, we broke down the pace of approval and started to learn something about the pace of legal cannabis production in the context of an imagined social problem produced by I-502 implementation, the “shortage” that many who should know better are citing as evidence of policy failure.  We will be tackling the “failure” cry as it pertains to I-502 as social, not just cannabis, policy in the coming week.  But for now I want to expand our examination of the I-502 legal cannabis markets as they take shape and how we expect them to change, rather than how they are a failure.

The above chart mirrors yesterday’s simple applicant-denominated narrative but is now broken into (a) Tiers per month and (b) nominal canopy approved per month.  Quite simply, we sorted out the WSLCB’s June 8 data on 87 approved producers by Tier and multiplied by the maximum canopy licensed per Tier: 1400 square feet, 7000 square feet, and 21,000 square feet.

This allows us to mobilize some of the assumptions introduced yesterday in service of how much area can be cultivated rather than how many applicants can cultivate.  Let’s review these, even though they will change with further data and in a different season.

1.  We assume that all Tier 1 cultivation is indoor, and that most Tier 3 cultivation is outdoor since no Tier 3s have been approved in King County (where warehouse production as opposed to greenhouses is most likely) yet.  Both of these assumptions are not likely to hold long, if at all, but they work as rules of thumb.

2.  We assume that all finished production until October, with the exception of smaller light dep rotations, is indoor.  No outdoor cannabis that is not light depped can be harvested until October.

3.  We assume that producers could (have) put most of their garden into bloom upon approval, since they could have had their entire crop in vegetative stasis while they waited.  How many of them were that prepared is an open question.

4.  Therefore we assume that each approved indoor producer could have (had) product available between 6-9 weeks after being approved, given 5-7 weeks of bloom and one for (rushed) curing.  This analysis indicates that while some June-licensed producers could be about ready to get product to market, all producers licensed before May 1 should be able to get product to market absent non-WSLCB factors (jurisdictional moratoria, municipal regulations, bad luck, incompetence, undercapitalization, etc).  Because of our cutoff date, we really only expect 10 Tier 1s, 10 Tier 2s and 8 Tier 3s to be active since these were licensed before May 1 approximately 11 weeks ago.  This allows us to expect the May cohort to approximately double supply by August 1, and the much bigger June cohort to quadruple legal cannabis supply by September 1.

5.  We can also assume that all Tier 3 outdoor and greenhouse canopy is being light-depped to some degree, and therefore some small portion of their approved canopy will produce between in mid July and September.  On the other hand, light-depped plants are smaller and yield less, and non-indoor producers really want to maximize their October harvest.

Tier analysis

168,000 square feet of Tier 3 canopy was licensed before May 1, our cutoff date for expected active canopy.  This canopy can be used in a number of different and hybrid ways:s full-sun, greenhouse, hybrid greenhouse, light dep, and indoor.  Tier 3 light dep canopy projections for mid-July to mid-August (light dep round 1) while 336,000 square feet were approved by July 8, which is a generous cutoff for a second light dep harvest mid-August-mid September.  We will be able to track light dep numbers pretty soon and begin to get an idea of how much Tier 3 canopy was devoted to light-dep, which will allow us to project October harvest numbers.  This is important because one of the first things people should know about non-indoor cannabis agriculture is that most of it is harvested in October, and therefore an increase in supply should lower wholesale prices per pound in November.

Until we have more information on the prevalence and practice of light-dep crops, though, we can’t guess at the ratio of light dep to full-term legal cannabis.  Additionally, Tier 3 canopy licensed after a certain point is not going to have any full term harvest by the end of October and may utilize greenhouse hybridization to bring crops to harvest later and perhaps utilize fully convertible greenhouse design to convert to indoor production in the winter months.  It will be interesting to see how quickly expertise, likely from Israeli cannabis consultants, maximizes year round greenhouse production.  As hybrid greenhouse expertise is developed amongst Tier 3s, legal retail cannabis prices will become competitive with medical and illegal market prices.  That’s a lot of uncertainty, which is why CASP projects a noticeable price drop for November 2014 and black market near-parity by November 2015, depending on how quickly the WSLCB expands its retail pool.

All the variables around Tier 3 production make it very hard to guess at what percentage of that 168,000 square feet of canopy is active, or even capable of maximizing light dep while successfully pulling off a  full term harvest.  Some Tier 3s are probably utilizing indoor infrastructure, as well, to get into the market before then.  Tier 3 production will dominate market share when this stuff gets figured out, but it would be a real stretch to predict much impact before November.

So at the moment, it’s likely that active Tier 3s are using some percentage of their permitted canopy to grow indoor and light dep, which takes a bit longer than indoor but not as much as full term.  Given this, we can make the extremely weak assumption that active Tier 3 producers are currently mobilizing a Tier 1 indoor cycle — both to accelerate time to harvest and to save space for full term outdoor.  So the above chart isn’t much help, but basically 8 Tier 3s were licensed before May 1 so our first rough cut at maximum active Tier 3 canopy is 16,800 square feet at 1400 each.

Tier 2 production is a lot harder to get a handle on: it is likely to be mostly indoor west of the Cascades, and significantly non-indoor east of the Cascades.  We will break down likely Tier 2 indoor/non-indoor splits by this geography later in this series, but for now we will mobilize the assumption that 80% of Tier 2 producers are indoor, and that Tier 2 producers who were licensed before May 1 should be capable of finishing product by now.  So, 70,000 square feet of canopy were licensed to Tier 2 producers by May 1, and 80% of that is 56,000 maximum square feet of Tier 2 canopy.

Indoor Tier 1 production is on the same indoor schedule as Tier 2, and since we assume all Tier 1s are indoor we should have 14,000 square feet of maximum active canopy by now, from 10 Tier 1 producers approved by May 1.

Our extremely provisional calculations thus work out to a maximum of 86,800 square feet of active legal canopy that could have been harvested by now.  That’s a far cry from the approximately 800,000 square feet of canopy figure being cited as approved in the news, and explains a bit better (a) why supply is so limited and (b) the rate at which it can be expected to increase.

How do these number translate into pounds, and can we refine our assumptions to learn more?  Stay tuned for our next installment.

 

 

 

 

 

Washington State Active Legal Cannabis Landscape Analysis: Part II

 

Since the publication of this post, we have been alerted that our assumption that most active Tier 3 producers are not indoor may be way off.  Blaine Stum, a researcher with the Spokane Marijuana Policy Working Group, reports that according to his research so far 7 out of the 8 Tier 3’s approved before May 1 may be indoor.  We will adjust our analysis going forward, but keep this in mind for now — Dr. Corva, 7/19/2014

by Dominic Corva, Executive Director

The Washington State Liquor Control Board released a July 8th update just a week after their last one.  The purpose of this analysis is to inform policymakers and the public about the development of the active legal producer pool in Washington State, and it will be updated regularly.

Our first chart, above, tells us a little something about the pace of producer license approvals in Washington State.  That pace is set by many variables, and it is not clear at this time which ones matter the most.  Many assume that this rate is set by the LCB and therefore they are responsible for what is being termed the current “shortage” of legal cannabis in Washington State.  We will address other variables in depth as this post is updated, but for now we can identify a few other variables:  real estate markets and regulation are really important and maybe more so than the pace of the LCB; applicant incompetence is widespread; loss of capitalization as the process drags on; and bad luck should be included as a major variable.

The 84 active state producers counted in the simple chart above do not tell us, however, anything about how much canopy per month has been approved.  CASP will be breaking this down in the coming days.

This chart does tell a simple story, though, from which we will extrapolate.  Remember, indoor producers can grow from cut to flower in about 10 weeks (curing takes longer, but we will ignore that for now).  Producers were allowed to start at any stage of the vegetative cycle, which is about a month indoor but can be indefinite.  Producers who are on the ball have kept their clones in a vegetative state, and in an abstract ideal world the new producers have a significant chunk of their canopy on the cusp of flower when they are approved.  Pending producers, take note and be prepared!

For the sake of our simple story, we will assume that no one activated later than Jun 1 is about to have product to market, since that’s about a month.  In reality, plenty of earlier producers weren’t ready to flower when they were approved, and some producers in June were probably on the ball and about to sell product any day now.

That gives us about 44 active producers who should be capable of supplying the 24 approved retailers who have either opened up this week or soon thereafter.  That’s not a nominal huge number, especially when we take into account that most of these are Tier 1s and Tier 2s.  On the other hand, it means that over the next month the effectively active producers — ones able to process and package cured sinsemilla flowers — will double.  How much a difference this makes will depend on how many more retailers open up; and how many of the 44 pre-Jun 1 producers will finally be coming on line like they should be given their head start.

And that’s really the issue right now.  Approved producers aren’t necessarily active yet, in the final product sense, for all the other variables besides WSLCB approval.  Many of them for some reason or another are missing out on the highest wholesale prices per pound we’ll ever see again.  The first producer to be approved, Kouchlock, had exactly one pound — less, really, at 400 grams — to sell to Cannabis City yesterday.  Nine Point out of Bremerton, WA, which was approved five days after Kouchlock, was able to supply Cannabis City with 10 pounds.  Both undoubtedly have other outlets, but the contrast indicates that perhaps Kouchlock had been running into those other variables we mentioned above — and they affect approved producers, not just pending ones.

 

 

 

 

My First Day of Legal Cannabis in Washington State

 

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by Dominic Corva, Executive Director

The first day of legal retail cannabis sales in Washington State started at 330 in the morning for me, though I was asleep.  A last minute interview request from CNN had me getting up early, but apparently first thing in their morning they tried calling me to come to the studio 20 minutes earlier.  By the time I woke, they had changed their mind, so after a desperate search for my own car keys I borrowed Dee’s and headed downtown uncaffeinated.

I struggled to make out where exactly the studio was in Fisher Plaza until Alison Holcomb arrived for her earlier, lengthier live interview (much deserved, of course). James Lathrop and his attorney arrived about the same time the coffee did. While I met James a few months ago, I had no idea he was even in the retail lottery, but once his big grin hit the news I called him up to get some inside scoop. Over the next few days I hooked him up with Sean Green’s active production company, which had a pound available. That increased Cannabis City’s initial supply 10%.

After the CNN “interview” (it was two softball questions and over before I knew it), CASP GIS consultant and videographer Steve Hyde picked me up to check out Cannabis City’s opening act. The space in front of the building was thick with media crews and equipment, VIPs and staff while the line stretched around the block. The entrance to Cannabis City was covered in bright yellow police tape advertising the impossible, today: DO NOT CROSS.

 

 

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Viv McPeak and Kanti Selig were there, beaming. Hempfest’s Sharon Whitson reminded the crowd that people were still going to prison for marijuana and that we need to not forget about them; Alison H was there, and gave a nice ribbon-cutting speech that reminded everyone that the best reason for doing this was de-incarceration; and Pete Holmes was there, boldly announcing his intention to exercise his freedom and imagining a drug war-free future. Patient advocates held up signs and educated folks about current medical cannabis trials.

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Finally James addressed the crowd with enthusiasm and grabbed some big-ass scissors. The Police Line: Do Not Cross tape met its fate, with some help from Alison Holcomb.

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Once the doors were open the real wait began, as one by one people entered to by legal cannabis. A grandmother named Deb walked out first, with each two-gram package in its own paper bag. Deb first consumed cannabis in 1977, and was an occasional enthusiast until her company adopted drug testing policies. Once she retired, one of the first things she did off her “bucket list” was enjoy a joint with friends.  She never went medical, though, and the last time she bought cannabis was six months ago.  Recently, her dealer saw her on the news and rang her to say “So that’s why you haven’t called me!”  She was a little concerned that her conservative daughter might not respond so well to her historic role, so I wished her the best as we ended our chat. The first legal cannabis customer couldn’t have been designed better to change perceptions about cannabis consumers.

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At that point it became a sort of block party — Magical Butter personnel in Seahawks-flourescent-green seemed to be singing, dancing, handing out water and doing line control, music leaking from a soundbox stashed somehere in one of their little MB wagons. Pete Holmes came out with 2 grams and announced to cameras that he was preserving one for posterity, and enjoying the other one in private, himself. Pete, please be more social with your cannabis consumption. I have people who would love to help with that.

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After mingling for a bit, Steve and I went to Lake City to check out the scene at the Amsterdam Exchange Farmer’s Market to catch a snapshot of gray market prices on the day of retail legalization. So here it is:

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I think those prices will be approached in November 2015, when the first full round of Tier 3 outdoor and greenhouse production comes in.

Washington State Active Legal Cannabis Landscape Analysis: Part I

Map by Steve Hyde
Map by Steve Hyde

by Dominic Corva, Executive Director

On July 1, 2014, the Liquor Control Board updated their master applicant for producers and processors.  This post is our first analysis of legal landscape production in Washington State.

62 Producers licenses are listed as “Active,” out of 2654 total.  Of that total, another 13 license applications have been withdrawn. This translates into about 2% of the applicant pool that is currently producing cannabis for retail shops that open early next week.

This seems like a pretty low number after more than six months, and some of that can be attributed to WSLCB’s chronic under staffing issues.  Several other things should be in the readers’ minds for context.  First, a significant number of producer applicants came from folks who were in weak position to capitalize on a license should they get it, whether from inexperience, incompetence, regulatory curveballs, under capitalization, and plain old bad luck.  This was evident from my interview with I-5 Realty owner Tom Gordon, who estimated that between 5-15% of total applicants would be active when the one year anniversary of the process occurs in November, due to their own issues.  It also jibes with WSLCB staffer Becky Smith told me  two months ago, that much of the hold-up was due to applicant issues rather than the agency’s human capital restraints.

Nonetheless, it is significant enough for the Center for the Study of Cannabis and Social Policy to begin mapping the landscape.  This begins with a basic step, the mapping of all 62 locations.  While we used publicly available WSLCB data on applicant addresses, we have chosen not to list those out of concern for processor safety.  The overall picture reveals that 548,800 square feet of canopy are “active” across the state.  Remember, this time last year the WSLCB expected to license 2 million square feet of canopy for I-502, total.  We are now a quarter of the way to that destination, and while that guideline has been bent and now broken, it’s something to keep in mind when people speculate about legal cannabis “shortages” and for how long.

The next thing to discern from the data are how big each processor is, by Tier, because this makes a huge difference between nominal market share and actual market share.  Tier 1 producers constitute 27% of approved licenses, Tier 2 48%, and Tier 3 24%.  By share of maximum nominal canopy licensed, however, the maximum square footage for Tier 1 producers is 5%; Tier 2 38%; and Tier 3 a whopping 57%.  These are nominal canopy numbers because effective canopy licensed depends strongly on whether folks are growing indoor or not indoor: indoor producers can max out at 5 canopy cycles per year while full sun outdoor producers can get 3 — and two of those are light dep cycles.

Nominal Share Tier Share Pie

Once we have the Tier breakdown, we can estimate (a) total approved effective canopy production and (b) market share per Tier Operation.  This gives us a sense of projected Tier market shares, since we have a 62 sample data set.  As a rule of thumb, all Tier 1 licenses can be assumed to be indoor production while all currently approved Tier 3 licenses can be assumed to be not indoor, because no Tier 3s have been licensed in King County, where large warehouse production is most likely.  At the same time, outdoor Tier 3 production does not have the capacity to rush growth on order to get to market like indoor canopy does.  Most Tier 3s are probably doing light deps for early harvests, but the lion’s share of their production will be harvested in October.  So, 57% percent of currently active canopy is highly unlikely to produce their maximum canopy till October, which skews the actual, existing production in favor of indoor, smaller producers and outdoor Tier 3s with hybrid greenhouses.

All signs point towards major windfalls for this cohort of active legal producers.  I’ve received reports of bids for wholesale pounds that range from $3000/lb to $7000/lb, which is about where black market prices were in the late 1980s till mid -2000s.  The $7000 bid is probably anomalous and would represent the highest price I’ve ever heard someone willing to pay for a pound of wholesale flower.  Most of the wholesale pound range will probably by between $4000-5000/lb, although folks with producer processor licenses will be able to capture more of that windfall than those with just producer licences given the extra tax step — but those producer/processors now have to contend with selling those pounds in packaged increments: one gram, two grams, and eighth (about 3.5 grams) and a quarter ounce.  That’s a lot of extra work and they are probably paying people to do it.

How does that work out per gram, if retailers sell pre-tax at between $15-$25/gram?   The $4000-$5000/lb wholesale works out to $9 and $11/gram that the producer gets — add $2.50 for the retail excise tax margin and current estimates then work out to a margin of between $2.50-$12.5/gram for retailers*.  The low end is not much, and perhaps there are more wholesale pounds going at under $4000/lb than I am aware.  It will be interesting to see whether the legal market follows the illegal and medical tendency for each step in the chain to add about 20%, but that’s about what it shapes up to be with these calculations.

This has been our first analysis of active legal cannabis production landscapes  in Washington State.  We will be updating these each time the WSLCB releases new data.

*This calculation has been revised and clarified.  Special thanks to CASP ally and accounting consultant, Todd Arkley CPA.

Hillary Clinton endorses CASP/We are Lab Techs of Democracy

 

by Dominic Corva, Executive Director

Yesterday at a CNN Town Hall meeting, likely 2016 Democratic nominee for Prez Hillary Clinton reiterated a ubiquitous political standpoint on “legal” aka “recreational” cannabis:  Washington and Colorado are political geography experiments:

“”On recreational, you know, states are the laboratories of democracy,” Clinton said. “We have at least two states that are experimenting with that right now. I want to wait and see what the evidence is.””

I’ll take that as an endorsement of CASP’s raison d’etre, learning lessons for legal landscapes.  We are lab techs of democracy.  Do I have any graphic designers out there that want to make that T shirt?

*The discourse of states as laboratories of democracy is a metaphor for Federalism and comes from Supreme Court Justice Louis Brandeis in New State Ice Co. v Liebmann (1932).

 

 

 

 

Cannabis: Still a “Signal of Misunderstanding”

by Dominic Corva, Executive Director

 

Since I’m producing original content for the Ganjier, I’ll cross-post the title and first paragraph of each piece followed by a link to the rest of it.

The passage of “CBD only” cannabis legislation in Florida this week signals a new challenge to the national discourse around what, exactly, is cannabis and to what extent it can be integrated into social policy — in this case public health policy.  While efforts to educate the public on the limits to this approach by the Drug Policy Alliance here and by Project CBD’s Martin Lee here exist, I want to historically situate what I’ll call the contemporary “CBD shift” in national cannabis policy debates …”

Read the rest here

Introducing the Ganjier collaboration

by Dominic Corva, Executive Director

I am honored to collaborate with one of Southern Humboldt’s finest, Kevin Jodrey, on The Ganjier.   My introduction and pre-populated content are linked below.

 

Q&A with Ganjier Contributor Dr. Dominic Corva

 

Beyond Black and White in Washington State

 

What’s California got to do with Washington?