Yesterday the Washington State Liquor Control
Board (WSLCB), having received almost 3,000 applications from
would-be marijuana growers, unanimously
voted to reduce the number of licenses per applicant and the
maximum size of farms. Initially the board said it would license up
to three grow operations per applicant; now each must make do with
one (at most). The board also cut the square footage allowed for
each level of cultivation license by 30 percent: from 2,000 to
1,400 square feet of plant canopy for Tier 1, from 10,000 to 7,000
for Tier 2, and from 30,000 to 21,000 for Tier 3. The reductions
were necessary, the WSLCB
explains, because otherwise the combined square footage of
qualified applicants would far exceed the board’s cap on total
production, which it has set at 2 million square feet. But that cap
is based on the amount of marijuana needed to supply just 25
percent of the anticipated market, which means the board is
deliberately engineering a shortage.
How come? “In its enforcement guidelines issued August 29,
2013,” the WSLCB notes, “the Department of Justice required states
to ensure a tightly regulated and controlled market to prevent
diversion of product to other states, sales to minors and other
concerns.” Regulators worry that if they let legal growers produce
enough pot to meet demand, the total supply will be excessive once
you take into account the black market and the quasi-legal
“collective gardens” that supply medical marijuana to patients
(although it seems likely that the legislature will
phase out the latter by the middle of next year). That extra
pot could end up in the hands of “minors” (a group that in this
case includes 18-to-20-year-old adults) or consumers in other
states, thereby implicating two of the “enforcement
priorities” that the Justice Department has said could trigger
federal intervention.
But all this central planning is fraught with uncertainty. The
demand estimate on which the board is relying, for instance, is
based on calculations
by RAND Corporation researchers who used state-level data from the
National Survey on Drug Use and Health (NSDUH) combined with their
own online survey of cannabis consumers, which aimed to figure out
how much marijuana each consumer buys over the course of a year.
Adjusting the NSDUH data to account for under-reporting, RAND’s
Beau Kilmer and his colleagues put total consumption in 2013 at 135
to 225 metric tons, with a median estimate of 175. That number was
more
than twice as big as an estimate by the Washington Office of
Financial Management, which said total marijuana consumption would
be about 85 metric tons in 2013. Kilmer et al. say the difference
“is largely driven by our use of more recent data.”
While the RAND study seems considerably more rigorous than the
state’s earlier projection, it still relies on a bunch of debatable
assumptions, and its estimate covers a wide range. Furthermore, the
estimate is for consumption in 2013, so it does not take into
account the likely increase in consumption after state-licensed pot
shops start opening later this year. That increase is apt to
include more-frequent use by current consumers as well as purchases
by new consumers and by visitors from other states. To get a sense
of how wildly off government projections of demand can be, witness
the delight of Colorado officials upon
finding that their haul from marijuana taxes in the next fiscal
year will be around $100 million, more than twice as high as
projected before voters approved legalization in 2012.
And recall that the WSLCB is expecting state-licensed stores to
capture no more than 25 percent of the market during their first
year of operation, a number that could turn out to be far from the
mark in either direction, depending on variables such as the
after-tax price of legal pot and the fate of medical marijuana
dispensaries. Additional uncertainty comes from
estimating how much square footage is needed to produce a given
amount of pot. As Soviet officials discovered on a much larger
scale, this coordination of supply and demand is a pretty
complicated problem when you insist upon arranging it through
government diktat.
In short, the only thing we know for sure about the
2-million-square-foot ceiling is that it will have to be changed at
some point. But for now, the WSLCB is sticking to it, which means
cannabis cultivators must conform to tighter limits than they were
expecting.
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