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TheStreet Open House

Washington Slashes Pot Crop

NEW YORK (TheStreet) -- Washington State is scaling way back on the amount of marijuana that it will license growers to produce for recreational uses. The Washington State Liquor Control Board issued two decisions on Feb. 19 with regard to production caps and addressing local bans and moratoriums.

The LCB originally allowed applicants to apply for multiple licenses and received 2,858 applications during the 30-day window in 2013. The LCB reviewed the first 1,500 applicants and determined that it would create roughly 35 million square feet of marijuana plants. However, based on the advice from its consultant, BOTEC Analysis Corporation, the state realized it only needs two million square feet. They have now decided that applicants can only have one license and have reduced each applicant's production to 70% of their designated tier.

Producer applicants can either withdraw their applications or the LCB can place it in a "hold" status in case the LCB decides to increase producer licenses. The LCB will refund fees paid if a license is not issued. These initial cuts will bring the production down to 12 million square feet.

"It's really unfortunate what they're doing at such a late date. It just validates how much they're struggling with implementing 502," said Robert Flatt of Initiative 502.

The LCB said it was seeing a 26% failure rate among applicants for various reasons like location issues or not meeting specified requirements. The LCB also expects many of the businesses to fail once established and based this on Colorado's experience of a 50% failure rate among its medical marijuana businesses within 18 months of business. The LCB also expects that bans and moratoriums will keep some planned businesses from opening.

Flatt pointed out that of the 75 cities with the largest populations in Washington, 35 have moratoriums, making it difficult for these businesses to find locations. He takes issue with the LCB for granting $1,000 licenses in locations with restrictions. The board though feels that some moratoriums may be temporary and could be lifted. Licenses will be issued regardless of local bans or moratoriums.

Many in the marijuana community do not like the bans or moratoriums that some communities enact, but the practice is not so unusual. Moore County, Tenn. is home to a Jack Daniels distillery and it is a dry county. Nearly one half of Mississippi's counties are dry and 83 towns in Alaska are dry according to a 2004 survey by the National Alcohol Beverage Control Association.

The LCB says it is on track to begin issuing licenses in March and expects that it will continue to do so for several months. Taking into account the growing process, the first retail outlets should be open for business in the summer.

-- Written by Debra Borchardt in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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