One of the biggest challenges faced by my licensed marijuana producer clients is the oversupply of marijuana currently on the market. A recent report from NPR indicates that many licensed producers in Washington State are selling marijuana for as little as $250 a pound.
The oversupply of marijuana not only financially harms licensees but also can result in diversion to the black market. If licensees are producing too much marijuana to be sold to licensed retailers then there is always the temptation to sell it to black market dealers. Thus, the Washington State Liquor and Cannabis Board (the “LCB”) is considering enacting rules to limit state wide production.
Earlier this year, the LCB requested public comment on rule changes to cannabis production canopy size. Currently, the LCB may reduce canopy levels for individual licensees per WAC 314-55-075. But, this rule does not address other instances where plant canopy may be adjusted and/or increased. Consequently, the LCB is currently considering proposals that would allow for additional canopy adjustments.
Adjusting plant canopy is one way to control the supply of legal marijuana in the state. Other methods, the LCB may give future consideration to are:
- Ending licenses transfers
- Prohibiting licensees from changing locations
- Terminating inactive licenses
To be clear, none of the above have yet been proposed by the LCB. But, if the marijuana glut continues, I would not be surprised if the LCB pursues options in addition to reducing statewide canopy.
Anyone interested in entering the legal marijuana market should consider how their business will operate and succeed given the current price of wholesale legal marijuana. Existing licensees need to consider how they will weather the current oversupply and what business steps to take in terms of expansion or contraction to succeed in the current marketplace.
The LCB will inevitably take steps to attempt to allieve the oversupply problem. The question to consider is how these steps will affect your long term business plan.
For more information on the regulation of marijuana businesses in Washington State, please contact Heather Wolf.