Higher Learning

What the next wave of pot-legalizing states can learn from Colorado and Washington.

Photo by Cliff DesPeaux/Reuters
An employee restocks a medical marijuana dispensary’s shelves in Seattle in 2012.

Photo by Cliff DesPeaux/Reuters

There’s a weed shortage in Washington. Three months after regulators in the state gave the go-ahead for retail marijuana stores to open their doors in July, licensed storefronts remain few and far between. And in the relatively few shops that do exist, there’s a noticeable lack of product. The state’s slow, weed-deprived start stands in stark contrast to the scene in Colorado, where regulators have largely delivered on their promise to quickly create a robust retail market.

Just how big is the gap between Colorado’s bounty and Washington’s scarcity? As of late last month, according to the Seattle Times, Washington officials had handed out 57 licenses to retail weed stores, many of which still haven’t opened due to a mix of supply and zoning problems. In Colorado, meanwhile, at least 40 retail shops began selling pot on Jan. 1, the first day sales became legal. Today, more than 240 recreational shops are in operation, a number that is set to grow to nearly 300 after Colorado handed out 46 new licenses to retail stores last week.

The contrast is even bigger in each state’s largest city. Supply is so hard to come by for Seattle’s two retail stores that the owners have had to get creative. Cannabis City has resorted to flying a flag outside on those occasions it does have bud for sale. The second, Uncle Ike’s, opened last week with limits on how much a customer could buy in hopes that it could stretch its initial stock into a second week. Customers in Denver, meanwhile, can pick and choose from among roughly 200 commercial outlets, few of which are in any danger of running out of pot. Unsurprisingly, that difference in supply and access shows up in the revenue column: Colorado’s retail stores sold roughly $14 million worth of legal weed during their first month in business, while Washington’s sold only $3.8 million.

Why do the two states that cast historic votes to legalize recreational pot on the same day in 2012 find themselves in such different places nearly two years later? While it may seem like Colorado is a runaway success story and Washington a cautionary tale, the cavernous divide between the states’ weed rollouts has much more to do with design and necessity than it does with the competence of each state’s government.

Rocky Mountain retailers are prevalent and well-stocked largely because of Colorado’s history with legalized marijuana. The state required its first shops to have operated within its existing regulated medical marijuana market, ensuring that Colorado would be dealing with established players. Regulators also decided to allow new stores to convert portions of their existing medical stockpile to commercial weed (allowing shelves to be stocked on Day 1), and they require all retail shops to grow at least half the weed they sell (helping them stay that way on Day 100).

Why, then, wouldn’t Washington make the same decisions? The short answer is that it couldn’t. The medical marijuana dispensaries that are scattered around the state are largely tolerated but technically illegal. Washington allows for individuals and caregivers to grow their own pot for medicinal purposes, but not to sell it commercially. So while Colorado was able to layer a new retail market on top of its already regulated medical one, Washington was forced to start from scratch. Between inexperienced regulators and unestablished entrepreneurs, it’s hardly a surprise that bureaucrats have been slow to issue licenses and stores have struggled to open.

The state and the sellers weren’t the only ones without a head start. Washington’s marijuana farmers were likewise barred from growing retail weed until they had licenses in hand—a decision that was a legal necessity but one that effectively guaranteed the state’s stores would be scrounging for supply until the first outdoor crops mature later this year. Regulators, no doubt realizing speed was not going to be their state’s calling card, also put a higher premium on safety, requiring quality testing from the outset. Colorado, meanwhile, opted to wait several months before phasing in similar mandatory potency testing, allowing the market to get off to a running start but leading to some problems along the way.

Washington’s slow and steady march could still pay dividends when it comes to the business of weed. While Colorado allows for—and in part requires—vertical integration between growers, processors, and sellers, Washington forbids it. That’s been an early burden for shops that need to spend their time searching for pot to sell, but regulators maintain that it will prevent the market from eventually being dominated by big businesses. As an added bonus for the state, it also provides three distinct points to impose a tax: between grower and processor, processor and store, and store and consumer.

And while the lack of medical marijuana regulations has caused Washington a string of headaches in the early days of retail pot, officials are optimistic that an eventual crackdown on the semi-illegal medical market will push many consumers into retail stores, where the pot is both taxed (good for the state) and tested for safety (good for the consumer). In Colorado, meanwhile, medical marijuana—cheaper than retail weed, and still legal—will remain relatively easy to buy for any resident who takes the trouble to secure a state-issued red card. So closing the gap between the medical and retail markets there will likely take longer and prove more difficult. Of course, given that the market is already regulated, harmonizing the two is also less urgent.

All of that is to say that it’s too early to predict whether Colorado and Washington’s bold pot experiment will work as intended and that it’s a mistake to judge either based on the speed at which each hits subjective checkpoints along the way. But with Oregon, Alaska, and the District of Columbia potentially joining the nascent legalization movement this November—and with a half-dozen other states considering similar ballot initiatives in 2016—it stands to reason that future regulators won’t have the luxury of waiting until all the evidence is in before deciding how to set up their systems. Nonetheless, the early returns suggest the regulations and structures they already have in place will be just as important as what they implement in the future. In that regard, states like Alaska—where medical pot is legal to use but technically illegal to buy—may have little choice but to follow Washington’s slow and steady lead. Those with a regulated medical market like Oregon’s, meanwhile, will have more freedom to try to match Colorado’s faster pace. The outstanding question is whether those two paths will lead to the same long-term result.