Jan. 8 (Bloomberg) -- Calling all pot-o-preneurs: In Washington state, where recreational marijuana is now legal for adults, political leaders are urging participants in this emerging industry to join the Rotary. Go mainstream. Be part of the business community.
We are just starting to see the first, hard details in the tricky balancing act of transforming an illegal business into a legal one, in Washington as well as in Colorado. With numerous state regulations and considerable watchdogging by the federal government, which still considers marijuana illegal, the big deal about legalization is that it may not be such a big deal. At least not right away.
In Washington, it now seems that tax revenue won’t be as plentiful as expected a little more than a year ago, when voters approved legalizing recreational marijuana. Seattle won’t be Amsterdam, with pot smoke wafting out of coffee shops. (No smoking in public, no selling in coffee shops.) Pot stores won’t be omnipresent.
In Seattle, starting in May or June, consumers will have almost two dozen retail outlets where they can find their herb of choice, with dozens more in surrounding suburbs. There will be up to 334 stores statewide. Even if that sounds like a lot (there are almost 700 Starbucks coffeehouses in Washington and they seem ubiquitous), some rural towns and counties might have only one or two pot shops.
“I think the hype about cannabis being legalized is huge, but the impact on society is not going to be as big,” said Randy Simmons, deputy director of the state Liquor Control Board. The pot law follows old liquor laws, which limited the number of stores and prohibited people under age 21 from buying in those stores. “There is a control factor that will take away from the image of a store on every corner and large pot parties in the park every day,” he said.
Hundreds of people showed up online on Nov. 18, the first day applications were accepted for licenses. They were Microsoft Corp. veterans, construction workers, farmers, pastry chefs, all hoping to grow or process or to open one of the private retail outlets that will operate a bit like -- and, one hopes, not be as ugly as -- those boxy, old-fashioned state liquor stores. And, according to the rules, no free samples allowed.
Washington will slap an excise tax of about 44 percent on pot by the time the consumer buys it in a retail store. But the state isn’t anticipating meaningful revenue from marijuana for a few years.
“We have to emphatically temper expectations of tax revenues,” said Reuven Carlyle, a Democrat who is chairman of the Finance Committee in the state House of Representatives. “This is completely art, not science.”
Colorado, which also legalized recreational marijuana in 2012, may get more tax revenue more quickly. Stores there opened on Jan. 1, and existing medical marijuana outlets are allowed to convert to selling recreational pot. Taxes will vary from jurisdiction to jurisdiction. In the Denver area, levies on the final product will be about 30 percent to 35 percent.
In Washington, experts conservatively estimate that the new recreational marijuana outlets, which have to start from scratch, will reach only 13 percent of the market in June, 25 percent a year later and 80 percent in five years. State-regulated stores have to compete with medical marijuana and black markets.
Washington-grown retail giants such as Costco Wholesale Corp. and Starbucks Corp. won’t be part of the party. The regulations don’t permit marijuana to be sold in stores that sell things other than pot edibles, liquids and paraphernalia.
Jamen Shively, a former Microsoft manager who made a splash announcing a plan for a national brand of marijuana, won’t get far here. For one thing, the rules limit the number of licenses investors can acquire.
The state of Washington won’t set prices for marijuana, with its many mellifluous and colorful strains. The legalization initiative didn’t provide for that.
The market will set the price. Marijuana that costs, say, $10 to $12 a gram on the street today could cost $14 to $18 in a pot store, counting taxes, security and other costs. Or prices could be about the same. It depends on whom you talk to. Over time, legal pot should become cheaper and more desirable.
“There is enormous value in being able to walk safely into a store and know you are purchasing a high-quality, safe product that previously carried big risk,” Carlyle said.
Moving people from the illicit marketplace to the legal one is a challenge. Safety is a selling point: State-approved products will be screened for pesticides, mold and bugs. (That black-market stuff has spider mites and chemicals you might not want to know the names of.)
Perhaps the most acrobatic balancing act is between taxation and price. Tax legal marijuana too much, and fewer people will buy it. Tax it too little and public support could wane if minors get a hold of it or if it slips across state lines.
The Department of Justice announced late last summer that it wouldn’t interfere with legalized recreational marijuana in Washington and Colorado with several big ifs -- if it stays out of the hands of minors, if it doesn’t migrate across state borders, and if the states manage drugged driving.
Some experts say law enforcement should ramp up and push illegal purveyors out of the market more rapidly. Local communities might not be able to afford to redirect law-enforcement resources in this way.
“This is the birth of a new industry,” Simmons said. “People want this thing to be born as a fully grown adult. But it’s still a baby, and we have to nurture it and protect it and help it grow.”
Washington and Colorado are the pioneers, adventuring, or lurching, forward; others will follow. Social attitudes toward legal marijuana for adults are changing quickly.
The rollout of recreational pot will hit many bumps along the way. Yet if these states and the new entrepreneurs manage the controlled experiment competently, they will become the model for the rest of the U.S. and for other countries -- which are already calling for advice.
(Joni Balter is a longtime Seattle columnist and writer who contributes to local NPR and PBS affiliates. This is the first of three articles on marijuana legalization in Washington state.)
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