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Washington Has More Pot Than It Can Smoke

Is a marijuana glut growing in the Evergreen State? CNBC's Jane Wells checks it out.
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Supply is outstripping demand in the unlikeliest place—legal recreational marijuana in the state of Washington. Growers who jumped into the new legal market hoping to make a killing in cannabis are now getting killed by a glut of product.

"There is going to be a lot of people who are going to be in trouble," said Ata Gonzalez of GFarmaLabs, which sells cannabis-infused products.

Much of the problem may be due to differences in the legal "adult use" marijuana markets in Washington and Colorado. In Washington, unlike Colorado, legal pot can be grown outdoors, and there was almost perfect weather last summer in the eastern part of the state, leading to a bumper crop.


Washington growers, processors and retailers are each taxed separately, accounting for as much as 75 percent of the retail price. Add in sales tax, and it's very hard to price a product that can compete with the flood of illegal pot coming up from Oregon and California as well as legal medical marijuana—which isn't taxed at all. Now that Oregon has voted to legalize recreational marijuana, a potentially lower tax rate there could hurt Washington even more.

"They've pretty much priced themselves out of the market," said grower Tom Lauerman of Farmer Tom's Organics.


Washington handed out grower licenses more quickly than retail licenses, creating an imbalance between farms and stores. However, Kevin Oliver of Washington's Finest Cannabis said the glut in supply "will likely disappear in the next few months," as the state estimates another 100 retail stores opening.


Colorado benefits from skiing, drawing tourists from around the world in a way that Washington does not. Also, Colorado isn't surrounded by states with a lot of medical marijuana, and it's closer to the Midwest, South and Northeast.

All of this has driven prices down in Washington for farmers like Lauerman.

"In the early days, we were able to get, like, $1,700 to $2,200 a pound, wholesale. Now it's like $700, $800 a pound," he said. "That's not profitable at all. I've got most of my stuff stashed away for later."

He's hoping to wait it out and eventually succeed with a branding strategy that may make him the first grower to put his name and likeness on a line of cannabis products. The label for his Farmer Tom's Organics looks as if Jerry Garcia took over Newman's Own. Lauerman also has released a set of trading cards based on the strains of pot he sells.

But it may be too late. Lauerman's farm is facing foreclosure, and he is filing for bankruptcy protection. He's not the only one, as growers and retailers have turned on each other. While some growers accuse retailers of demanding unprofitable wholesale prices in order to make a retail profit, Oliver echoed others in saying that "the people who are complaining the loudest about the glut ... are those producers who came online in July and were charging $21 a gram, gouging the retailers because they were the only producers on the market at the time."

Watching all of this from afar is Gonzalez of GFarmaLabs. He's looking to expand from California into Washington.

"The guys that own these facilities that now have all this pot, they owe investors money," he said. "This is a boom like anything else." He's waiting for a bust. "We're going to be able to go in there, and we're going to buy facilities for pennies on the dollar."

It's gotten so bad at the moment that Lauerman said some growers are "giving it away" to help get rid of inventory and build customer loyalty. The situation could be compared to the wine grape glut in California a decade ago, which led to the birth of Charles Shaw Wine, aka Two Buck Chuck. Could there be a Two Buck Toke as the Washington pot industry searches for stability?

As Lauerman pointed out, there's certainly enough product for one: "There's 45,000 extra pounds floating around out there with no home right now."