Washington's Cannabis Market: What Investors, Entrepreneurs Need To Know

The state of Washington has a booming cannabis market. It's among the most mature in the country, and sales continue to rise.

That said, market concerns remain and range from excise taxes to a lack of diversity. If the state intends to continue moving forward, these issues need to be addressed.

Washington's Market Booms As Population Increases

Washington legalized cannabis in 2012, setting an example for how the industry can put tax dollars into the state’s coffers. In 2020, the state earned $469 million in revenue.

In 2019, the state generated $395.5 million in revenue and licensing fees. All but $5.2 million came from excise taxes, which are among the highest in the nation.

Washington has its fair share of major players, including 4Front Ventures Corp. FFNTF and Rubicon Organics Inc. ROMJF.

Howard Lee, CEO of SōRSE Technology, said business has been booming over the last 12 months, and sales have increased by 17% in 2020.

Most operators in the stte are profitable, and "you can make money in Washington state if you are a good operator," Lee said. 

He credits the market's success in part to a minor impact from the illicit market, which is not often the case in high-tax states.

Carson Shipley, media coordinator for Seattle's Lux Pot Shop, which has three locations in the city, noted positive market growth and said the state's population has also grown 1.5% each year since 2014.

"As a Seattle retailer since 2015, we've seen good change, yet some of the cons remain the same," Shipley said.

Lack Of Diversity Among Washington Cannabis Licensees 

Washington offers ample room for revenue growth, a fact that investors and entrepreneurs should note. However, shortcomings remain as the market nears its first decade of operation.

Diversity and inclusion remain an issue. Only 3% of the state's cannabis licenses are held by Black operators and 1% of the state’s production and processing operators as well as license holders are Black.

Lawmakers took steps to address this issue when they passed HB 1443 in 2021. The bill aims to expand social equity qualifications while undertaking other fixes to market regulations.

Licensing is also difficult for outsiders to secure. Applicants must have at least six months of residency before placing any stakes in the market.

"Investors outside the state should bide their time and hope that the restrictions on outside investment will be lifted in the next year or so," Lee said. He pointed out that four bills introduced in the legislature to address the matter are up for debate.

A common argument for easing restrictions is the potential to grow the marketplace, Lee said. Yet small cannabis business owners fear they will be forced out as big money comes in.
Additional concerns persist, including high taxes.

Shipley noted that excise rates could reach 47% in Seattle and 37% across the state. The state also has a high discount rate, 17%, and the smallest average basket size of $34 and 2.3 items per order.
He sees tax concerns persisting while the market remains oversaturated with products; he predicts the high discount rate will subside as product offerings dwindle. 
"Many producers are struggling to compete and smaller farms are being purchased by large corporations," Shipley said.