In Washington State, we’ve got three markets for buying marijuana.  The dark-market (DMJ), medical (MMJ) and recreational (RMJ).  This is causing some havoc in the space for many of the participants.

For the dark-market side; where the costs to the consumer are lowest (~5-7/g) their sales have been slowing; but gradually.  They already felt competition from MMJ.  Consumers from the black-market can easily transition to the Recreational side but the costs are much higher.

MMJ is generally higher cost than black-market. However the barrier for consumers is high. They must see a specialist doctor and get a note and then join a co-op.  For the state this co-op doesn’t generate any additional revenues.

On Recreational the risk to the parties is the lowest however the cost of the product is currently the highest (~18/g).  Every Recreational store I’ve seen or spoken to has more selection than the MMJ stores; MMJ stores generally have more selection than Black-Market.

Market Dynamics

A wide spectrum exists: low-cost/low-selection/mid-risk, mid-cost/mid-selection/mid-hassel and high-cost/large-selection/low-risk.

All three markets compete with each other; each is taking market-share from the other.  This is clearly cutting into the revenues the state receives from the RMJ.  To add to this mess; their are multiple suppliers who are restricted in selling.  That is MMJ is closed to MMJ only and RMJ is closed to only RMJ.  There is very little fluidity in the space which is causing very sticky prices; sticky prices prevent the Recreational side from responding to their customers.

The State is unable to stop the dark-market; they’ve been trying for years.  The state wants the tax revenues from the Recreational side.  This clearly puts new pressures on the MMJ businesses.  In Washington we’ve seen an up-tick pressure on the MMJ side.  There have been new audits and closures of these MMJ co-ops.

The conflict between these players cannot be solved while three distinct, isolated markets exist.  Imagine if you could only purchase a Ford in King County if you are a King County resident.  That’s silly right?  We have a similar situation now for the business operators in marijuana but not for the consumers.  This conflict is putting MMJ stores at risk and slowing the adoption of the Recreational space.