Pubdate: Sat, 17 Jan 2015
Source: Seattle Times (WA)
Copyright: 2015 The Associated Press
Contact:  http://seattletimes.nwsource.com/
Details: http://www.mapinc.org/media/409
Author: Gene Johnson, The Associated Press

GROWERS STRUGGLE WITH POT GLUT

Too Few Retailers to Absorb Big Fall Harvest

Wholesale Prices Have Plunged Since Summer Shortage; State Official 
Hopes for 100 New Stores in Coming Months

(AP) - Washington's legal marijuana market opened last summer to a 
dearth of weed. Some stores periodically closed because they didn't 
have pot to sell. Prices were through the roof.

Six months later, the equation has flipped, bringing serious growing 
pains to the new industry.

A big harvest of sun-grown marijuana from Eastern Washington last 
fall flooded the market. Prices are starting to come down in the 
state's licensed pot shops, but due to the glut, growers are - 
surprisingly - struggling to sell their marijuana.

Some are worried about going belly-up, finding it tougher than 
expected to make a living in legal weed.

"It's an economic nightmare," says Andrew Seitz, general manager at 
Dutch Brothers Farms in Seattle.

State data show that licensed growers had harvested 31,000 pounds of 
bud as of Thursday, but Washington's relatively few legal pot shops 
have sold less than onefifth of that. Many of the state's marijuana 
users have stuck with the untaxed or much-lesser-taxed pot they get 
from black-market dealers or unregulated medical dispensaries - 
limiting how quickly product moves off the shelves of legal stores.

"Every grower I know has got surplus inventory, and they're concerned 
about it," said Scott Masengill, who has sold half of the 280 pounds 
he harvested from his pot farm in Central Washington. "I don't know 
anybody getting rich."

Officials at the state Liquor Control Board, which regulates 
marijuana, aren't terribly concerned.

So far, there are about 270 licensed growers in Washington - but only 
about 85 open stores for them to sell to. That's partly due to a 
slow, difficult licensing process; retail applicants who haven't been 
ready to open; and pot-business bans in many cities and counties.

The board's legal-pot project manager, Randy Simmons, says he hopes 
about 100 more stores will open in the next few months, providing 
additional outlets for the weed that's been harvested. Washington is 
likely to always have a glut of marijuana after the outdoor crop 
comes in each fall, he suggested, since outdoor growers typically 
harvest one big crop, which they continue to sell throughout the year.

Weed is still pricey at the state's pot shops - often in the $23- to 
$25-per-gram range. That's about twice the cost at medical 
dispensaries, but cheaper than it was a few months ago.

Simmons said he expects pot prices to keep fluctuating for the next 
year and a half: "It's the volatility of a new marketplace."

Colorado, the only other state with legal marijuana sales, has a 
differently structured industry. Regulators have kept a lid on 
production, though the limits were loosened last fall as part of a 
planned expansion of the market.

Colorado growers still have to prove legal demand for their product, 
a regulatory curb aimed at preventing excess weed from spilling to 
other states. The result has been more demand than supply.

In Washington, many growers have unrealistic expectations about how 
quickly they should be able to recoup their initial investments, 
Simmons said. And some of the growers complaining about the low 
prices they're getting now had gouged the new stores amid shortages 
last summer.

Those include Seitz, who sold his first crop - 22 pounds - for just 
under $21 per gram: nearly $230,000 before his hefty $57,000 tax 
bill. He's about to harvest his second crop, but now he expects to 
get just $4 per gram, and at a time when he has big bills to pay.

"We're running out of money," he said. "We need to make sales this 
month to stay operational, and we're going to be selling at losses."

Because of the high taxes on Washington's legal pot, Seitz says 
stores can never compete with the black market while paying growers 
sustainable prices.

He and other growers say it's been a mistake for the state to license 
so much production while the rollout of legal stores has lagged.

"If it's a natural bump from the outdoor harvest, that's one thing," 
said Jeremy Moberg, who is sitting on 1,500 pounds of unsold 
marijuana at his CannaSol Farms in North Central Washington. "If it's 
institutionally creating oversupply ... that's a problem."

Some retailers have been marking up the wholesale price threefold or 
more - a practice that has some growers wondering if certain stores 
aren't cleaning up as they struggle.

"I got retailers beating me down to sell for black-market prices," 
said Fitz Couhig, owner of Pioneer Production and Processing in Arlington.

But two of the top-selling stores in Seattle - Uncle Ike's and 
Cannabis City - insist that because of their tax obligations and low 
demand for high-priced they're not making any money either, despite 
each having sales of more than $600,000 per month.

Aaron Varney, a director at Dockside Cannabis, a retail shop in the 
Seattle suburb of Shoreline, said stores that exploit growers now 
could get bitten in the long run.

"Right now, the numbers will say that we're in the driver's seat," he said.

"But that can change. We're looking to establish good relationships 
with the growers we're dealing with."

Kristen Wyatt contributed to this story from Denver.
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MAP posted-by: Jay Bergstrom