State faces prospect of too many pot growers

SEATTLE — Washington state could be facing a curious economics problem: too many pot growers.

According to updated figures released Tuesday, more than 2,600 applications have been submitted to produce the marijuana that will be sold at state-licensed stores when Washington’s legal marijuana industry opens for business around the middle of this year.

That’s a problem because officials are, at least initially, capping total pot production at 2 million square feet, or about 46 acres. It remains to be seen how many applications are approved, but if it’s even close to the number submitted, that could leave growers with less than 1,000 square feet apiece on average — not enough space for most to run an economically viable operation.

“It’s going to be a challenge, no question about it,” said Alison Holcomb, the Seattle attorney who drafted the legal pot law. “There are 10 times as many applications as we need.”

The prospect of having too many growers isn’t the only difficulty prompted by the overwhelming interest in the industry. Some 2,035 applications have been processed so far for retail licenses, but the state is capping the number of pot shops statewide at 334. That means there are likely to be lotteries for those licenses in many areas.

In Seattle, where the state Liquor Control Board has allotted 21 pot shops, there have been 408 retail license applications. In Spokane, which will have eight marijuana stores, there have been 84 applications.

Board spokesman Mikhail Carpenter said it’s premature to worry about the number of applications, because while the state is not capping the number of growers, no one yet knows how many will meet criteria. The board must screen each application to make sure the proposed locations aren’t within 1,000 feet of schools, parks, daycares or other locations where children frequent. Officials must also conduct background checks on applicants and their financial backers.

“They haven’t gone through the licensing process,” he said. “We don’t know how many are viable.”

The board is issuing growing licenses of three tiers: less than 2,000 square feet; 2,000 to 10,000 square feet; and 10,000 to 30,000 square feet. Under its rules, if the total amount of licensed growing canopy exceeds 2 million square feet, it may reduce by an equal percentage the space allotted to each grower, or apply those reductions to the growers in one or two of the tiers.

Holcomb called the glut of pot-growing applications “a real problem for the people that want to go into production.”

“If you apply for a 30,000-square-foot grow and incur all the expenses for the lease and buildout, you don’t want to suddenly learn that you can only grow 2,000 square feet,” she said.

Holcomb suggested the board should be prepared to raise the production cap of 2 million square feet, to ensure enough pot is produced to meet demand. It remains unclear how good the licensed growers will prove to be, and how much usable marijuana they’ll actually produce from the 2 million square feet of canopy.

She noted that soon after recreational marijuana stores opened in Colorado Jan. 1, some had to close early due to limited supply. Some stores jacked up prices due to the first-day demand.

Some hopeful growers have applied for the maximum of three top-tier licenses, meaning they might have been planning to grow as much as 90,000 square feet of cannabis.

“Our biggest clients are sweating it,” said Seattle marijuana business attorney Hilary Bricken. “People are paranoid and they have every right to be paranoid, because no one knows what’s going to happen. As a business strategy, can you rely on everyone else’s failure so that you can have the size grow you want? I would say, no, not if you want to sleep at night.”

But Paul Schrag, of Commencement Bay Production and Processing in Tacoma, said he’s not panicking. His company has applied for two growing licenses, with plans to start with an initial grow of about 3,000 square feet and expand from there.

“Knowing what I know of the gantlet people have to go through to receive a license, I have a feeling a good percentage of those applications will be eliminated,” he said. “There’s a lot of due diligence left that’s going to thin out those numbers.”