Washington State is one of the least talked about cannabis markets in the United States (US) and we find this to be surprising due to how the industry has grown since voters passed legislation to legalize recreational cannabis in 2012.

2021 was a banner year for Washington State’s cannabis industry and the state reported more than $1.5 billion of cannabis sales for the year. This makes Washington State one of the largest cannabis markets in the US and we believe the market is flying under the radar.

According to the 2021 MJBizFactbook, Washington State’s recreational industry could be a $2.5 billion market by 2025. We are bullish on the potential growth that is associated with the state’s cannabis market and will monitor how the market evolves over the coming years.

Although we are impressed with the amount of sales in 2021, Washington State’s cannabis industry still faces issues that make it a less attractive market to large-scale operators. We believe three of the most significant pain points for the state’s cannabis industry are:

Taxes – The state has the highest excise tax for recreational cannabis sales in the country. With a 37% excise tax, additional pressure is put on prices and margins
Regulations – According to cannabis operators and attorneys, Washington State regulators penalize businesses for making minor mistakes. Many cannabis operators believes that regulators are tougher on them than they are on alcohol and tobacco businesses
Access to Capital – Washington State has passed regulations that prevents operators from accessing outside capital which serves as a headwind for growth

An Industry that Faces Significant Headwinds

By including state and local taxes, Washington cannabis consumers pay an average tax rate of 46.2% and we find this to be unsustainable over the long-term. By imposing this high of a tax on consumers, the illicit cannabis market has continued to thrive. Going forward, we believe the state needs to update regulations to be more in-line with other markets in the US.

When analyzing the issues and obstacles that cannabis businesses face in Washington State, we are not surprised that high-profile US multi-state operators (MSOs) have avoided the market. When compared to markets like Colorado, we consider Washington State to be a less attractive market and will monitor how the industry advances in 2022 and beyond.

If you are interested in learning more about the companies which are levered to Washington State’s cannabis market, please send an email to support@technical420.com with the subject “Washington State Cannabis Operators” to be added to our distribution list.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.