Washington’s Pot Debut Slowed as 7% of Licenses Are Approved

July 8 (Bloomberg) -- Tom Beckley, owner of Top Shelf Cannabis, and Thoma Kikis, co-founder of KannaLife Sciences, discuss the regulation of medical marijuana with Pimm Fox on "Taking Stock." (Source: Bloomberg)

Washington became the second state to sell marijuana legally today, though availability will be limited after officials approved just 25 of 334 allotted retail licenses.

Pot retailers eligible to open stores today include Main Street Marijuana in Vancouver and Cannabis City in Seattle, the only one in the state’s largest city, according to a list released by the Washington State Liquor Control Board.

“What we found is that many of our applicants just weren’t ready to be licensed yet,” said Brian Smith, a spokesman for the agency charged with regulating the industry. Many are still negotiating with landlords, he said.

Washington, home to Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT) and Starbucks Corp. (SBUX), joins Colorado in permitting the sale of marijuana for recreational use. Voters in both states approved 2012 ballot initiatives, and Colorado retailers began selling it in January.

“We’ve been slammed since we opened,” said Zack Henifin, 26, co-manager at Top Shelf Cannabis in an industrial area in Bellingham, which opened at about 8 a.m. Washington time to a line around the corner. One gram of marijuana sells for $16 to $25 after a 33.7 percent tax, he said.

‘Everyone Excited’

“Everyone is excited to buy marijuana legally in Washington,” Henifin said. “If it continues like this, we’re going to be close to selling out.”

Photographer: David Ryder/Getty Images

Brian Travino, right, holds a Washington state flag as he waits in line with others at Top Shelf Cannabis, a retail marijuana store, on July 8, 2014 in Bellingham, Washington. Close

Brian Travino, right, holds a Washington state flag as he waits in line with others at... Read More

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Brian Travino, right, holds a Washington state flag as he waits in line with others at Top Shelf Cannabis, a retail marijuana store, on July 8, 2014 in Bellingham, Washington.

Alaska voters will consider a measure for recreational sales in November, and an effort is underway to place a similar initiative on the ballot in Oregon. Two years from now, legal-pot advocates plan campaigns in Arizona, California, Massachusetts, Maine and Montana. Selling marijuana remains illegal under federal law, and pot bought in Washington must be consumed there.

Cannabis City owner James Lathrop said he invested $50,000 in his store, located in an industrial section south of downtown Seattle, along a six-lane road and with no off-street parking. He said he was turned down by 10 landlords who didn’t want to be associated with marijuana.

The store’s name is in small print above the mailbox. Under state rules, cannabis can’t be displayed in windows, and stores can’t be near schools, playgrounds, libraries or parks.

‘Terrible Spot’

“This spot was really a terrible spot, but it’s cheap rent,” said Lathrop, who previously ran a bar. “Most of my costs have been in making it beautiful.”

Inside, recycled glass jewelry cases display pipes and bongs, or devices that filter marijuana smoke through water.

Photographer: David Ryder/Getty Images

Customers shop for marijuana at Top Shelf Cannabis, a retail marijuana store, on July 8, 2014 in Bellingham, Washington. Close

Customers shop for marijuana at Top Shelf Cannabis, a retail marijuana store, on July... Read More

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Customers shop for marijuana at Top Shelf Cannabis, a retail marijuana store, on July 8, 2014 in Bellingham, Washington.

Washington also issued 90 licenses to producers and processors, Smith said, citing data as of last week. There’s no limit on how many such permits can be issued.

Under the ballot measure approved by Washington voters, producers, processors and retailers each must pay the state a 25 percent excise tax. The actual levy on pot sales will be lower than the combined 75 percent because many producers and processors will operate as one entity.

Revenue in Washington from recreational sales is projected to fall 69 percent short of initial estimates. Two years ago, state officials projected tax revenue totaling as much as $1.9 billion from July 2013 through June 2017. Officials last month estimated revenue at $586 million over the four years starting in July 2015.

Meeting Demand

Washington state growers are still struggling to produce enough product to meet demand. With as many as 2,000 customers expected today, Cannabis City will probably sell out of its 10 pounds of pot in a single day, store manager Amber McGowan said. It may take another week to replenish stocks, including such strains as Copper Kush, O.G.’s Pearl and Sweet Lafayette, she said. Pot will be priced at $20 per gram, she said.

At Freedom Market in Kelso, owner Kathleen Nelson said she is awaiting the arrival of her product before opening her doors today.

Nelson, 53, said she’s had a hard time finding marijuana, with producers already promising product to other stores.

“We scrambled for some product and found some,” Nelson said. “We’re waiting on pins and needles for that to be delivered.”

Nelson said she plans to charge about $25 per gram, or $33 with taxes. Consumers have been pulling up and leaving when they realize she hasn’t opened the store yet, she said.

Tax Revenue

Colorado, which initially allowed only existing medical pot retailers to sell marijuana for recreational use, collected $10.9 million in tax revenue in the first four months of sales. Consumer demand in the state doubled prices in the first week, to an average of $400 an ounce, compared with $200 an ounce for medical marijuana, partly because of a higher tax on recreational sales.

In Washington, unlike Colorado, edibles, or marijuana-infused foods such as chocolates and mints, won’t immediately be available, Smith said. The liquor board will approve all marijuana-infused products, packaging and labeling.

“The board is very concerned that the products are not especially appealing to children,” Smith said.

Over time, McGowan said she expects the state to allow sale of edible marijuana products.

Washington Governor Jay Inslee, a 63-year-old Democrat, warned against pot sales to minors.

“It is incumbent on everyone -- retailers, parents, health professionals and public officials -- to do everything possible to keep pot away from kids,” he said in a June 24 statement. “If we fail in that, Washington’s regulated, retail market for marijuana may fail too.”

To contact the reporters on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net; Peter Robison in Seattle at robison@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Jeffrey Taylor, Ben Livesey

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