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In the marijuana business? It's complicated

On the road to legalization, growers and regulators alike struggle with the grey areas between legal and illegal weed.
Medical marijuana grower Brendan Howley inspects marijuana hung to dry at a facility he operates with his business partners. 1/2013

Medical marijuana grower Brendan Howley inspects marijuana hung to dry at a facility he operates with his business partners. 1/2013 Tom James/Crosscut

Dean and Marsha don't look like your average criminals.

Both in their sixties, the pair is warm and genuine, reminiscing over their younger days and telling stories of their grown children. In their well-kept, modest rural home near Gig Harbor, Marsha's framed cubist paintings cover every wall. With Dean's round face and long white hair, and Marsha's deep laugh lines and penchant for hugs, the two seem more like a pair of content grandparents.

But in the eyes of the state — despite their two medical marijuana licenses, entitling them to 30 plants, a number they're careful not to exceed — criminals is exactly what Dean and Marsha are. Because of the fact, both spoke on the condition that their whole names not be used.

"We're part of the evil armed cartels," Marsha said, with a chuckle and a smile in her living room late last month.

What puts the couple outside the bounds of the law is what they do with the marijuana they harvest. About two-thirds of it goes legally to dispensaries, destined for prescription-holding medical marijuana patients. But the other third goes to the black market, into the hands of people without prescriptions.

For the Washington State Liquor Control Board, the agency charged by Initiative 502 with creating a legal market for marijuana in the state, that makes them part of a major emerging problem: What to do about black market overflow from the state's medical marijuana market.

Initiative 502, which legalizes the production and use of marijuana, was intended to eliminate the demand for black market weed, but a surplus grown under the legal umbrella of the medical marijuana industry is making that a challenge.

A simple equation

For longtime Skagit County medical marijuana grower Brendan Howley, the arithmetic is simple. Current state law allows a grower to keep 15 plants and 24 ounces of dried marijuana on hand. Skilled growers though, with high-tech setups, can get more than 24 ounces out of just a single plant. If a grower grows all of his legal plants, Brendan explains, he will inevitably end up well over the legal limit.

"I don't think an expert grower can conform to the law the way it’s written," Howley says. "An expert grower can break the law with one plant."

The fact that Brendan is able and willing to move all of his product through legal channels puts him in the vast minority. Most growers, he says, operate with one foot in the black market, selling part of their product to legal dispensaries, and part to middlemen or dealers, who then sell to recreational users.

Currently, if growers hold onto excess product after harvest, taking the time to move it themselves to a dispensary, they can be arrested for having too much on hand. On the other hand, the black market pays from 25 to 50 percent more than dispensaries, which buy at wholesale rates low enough to tack on their own premiums afterward.

Since growers are breaking the law whether they keep extra product or not, Howley says the extra cash is just enough to sway most people toward pushing their extra legally-grown marijuana into street supplies.

One way the plant moves from growers to the street is through people like Harvey, a "middleman," though not a dealer. Harvey usually works with three to five growers at any one time, buying or accepting marijuana deliveries on trust and then selling to dealers. Like Dean and Marsha, he asked to be identified by first name.

A former employee at a medical marijuana dispensary, Harvey has known many of his growers for years, even decades. Although his work has eventually become something he's known for, he says he still only moves a few pounds a year; the equivalent a part-time job.

Even after the liquor control board brings most of the market into the open, Harvey thinks there will still be a place for people to sell the plant illegally.


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Comments:

Posted Thu, Feb 7, 11:38 a.m. Inappropriate

I've heard it through the grapevine that the local street price of marijuana has been coming down lately, after remaining fairly stable for the last few years. If true, it makes you wonder if the timing is somehow connected to the crafting of a legal market which is supposed to begin operating less than a year from now. Of course, as the article has indicated, lower black market prices will only make the creation of a legal one all that much harder.

Posted Sun, Feb 10, 2:17 p.m. Inappropriate

The state will soon be nothing more than a drug gang rival to the Mexicans or the Colombians or the Vietnamese, except that the state will have the police and the courts on its side. Think "Tony Soprano on steroids."

The whole idea will be to protect the state's price. In the I-502 documents, that price is $15 a gram. Today, a dispensary charges $10 a gram, and often less with discounts. Prices are even lower in Oregon. That's the actual threat to the state here, so they have to wipe out the competition. This has nothing to do with public health or safety. It's going to be the state's attempt to protect its monopoly, period.

They'll do it through all manner of harassment and outright propaganda, as indicated by this article. It will be a series of actions that, if undertaken privately, would expose the perpetrator to prosecution for antitrust, imposition of adhesion contracts, and extortion, to name a few. But the state will be doing it, so it'll be perfectly legal.

I think the state will succeed in its effort to crush (er, "integrate") medical marijuana. That's what they'll have to do to avoid being undersold by that rival, and they'll do it. What the state will NOT succeed in doing, though, is crushing the traditional rivals, i.e., those Mexicans, Colombians, Vietnamese, Oregonians, Californians, British Colombians, and so on.

The I-502 framework is doomed from the start. According to a Rand Corp. study ("Estimated Cost of Production for Legalized Cannabis" -- easily Googled and downloaded), the cost of growing 15% THC marijuana commercially is $2.85 an ounce, or 10 cents a gram. The cost of illegally growing it is about 10 times as much, because of the need for concealment.

That leaves the state's competitors with a wholesale cost, including distribution to dealers, of about $2 a gram. I-502 and its taxes assumed a 100% state market share, and a retail price of $15 a gram. It doesn't take a Ph.D. to see what will happen here. All the state's horses and all that state's men will not put the competition out of business. The state will try, but the state will fail.

In the process, the state will do what it's always done, which is throw people in jail for marijuana offenses. There is truly nothing new under the sun.

NotFan

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