Outdoor pot plants grow on a hillside in Chelan County.
Outdoor pot plants grow on a hillside in Chelan County. Lester Black

This year’s outdoor pot harvest appears to be the largest in state history. The state’s Liquor and Cannabis Board (LCB) reported over 90,000 pounds of cured pot in October alone, the biggest haul for a single month in state history. This huge outdoor crop is hitting a market that was already saturated with lots of cheap weed, heightening worries across the industry of an oversupply problem.

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The amount of cured cannabis reported in October was 31 percent more than what was reported the same month last year, according to TopShelfData.com, a website that uses the state’s pot tracking system to analyze the legal industry. November’s numbers, which have not yet been released by the state, are likely to be even larger.

This massive outdoor harvest is coming after four years of increasing yields from Washington’s pot farmers, sending retail prices plummeting. The average retail price per gram is currently $7.45, or 77 percent lower than when the market opened in July of 2014, according to TopShelfData.com. October’s harvest would be worth over $306 million if it is sold at that current $7.45 per gram average.

Regulators are now worried that Washington’s weed market is producing more pot than the state can consume, which could be encouraging people to divert legal weed out of the state. It is the state government’s obligation, under the Department of Justice’s Cole Memo, to stop legal cannabis from leaking out of state. The non-binding Cole Memo is the primary federal document guiding the country’s state-legal pot regulations, so running a market that violates the Cole Memo’s priorities would be a problem for the state government.

The LCB is now scrambling to try to make sure the state’s legal weed system is still compliant with the Cole Memo, sending officials around the state measuring the legal pot supply and possibly getting ready to reduce the size of pot farms in the state. Russ Hauge, an LCB board member, said during a public meeting this month that the LCB has no idea if the market’s supply matches demand.

“Somebody is going to ask us to match the two up, and what we want to do try to do is get a handle on it before it’s a crisis situation,” Hauge said at a Cannabis Advisory Council on Dec. 6.

The board may start reducing the size of pot farms in the event that a “crisis situation” develops. On Thursday, the LCB announced that it is working on rules to determine how to “adjust canopy amounts to keep pace with demand for cannabis products (increases or decreases) should adjustments become necessary.” State regulators refer to each farm’s licensed grow area as its “canopy.”

Brian Smith, a spokesperson for the LCB said the new rulemaking was unrelated to this fall’s harvest. The new rules on modifying farm sizes have not been written yet, Thursday’s announcement was only the first notice of a rulemaking process. Joanna Eide, a rulemaking coordinator at the LCB, said the new rules would give the state another way to control the supply side of the market.

“We are not trying to cause any surprise or alarm, this is just in case it is ever needed then this is another tool in our toolbelt and it will be very clear about the parameters and the conditions under which it would apply,” Eide said.

Some business owners and industry analysts say that it is not a question anymore: The market is oversupplied and diversion is happening. Jeremy Moberg, the owner of CannaSol Farms, told regulators at the Dec. 6 meeting that there was no question that legal weed leaving Washington State.

Moberg said people can legally purchase cheap weed in Washington and then illegally drive to another state and offload it for a profit.

“You don’t need to run it out the back door or be clandestine, all you need to do is sell it to a retailer for half the price of black market price and then somebody can run around the state picking up ounces for $40,” Moberg said.

Jim MacRae, a data scientist that was warning the LCB about shoddy cannabis labs months before the state cracked down, recently wrote a blog post claiming that the market was vulnerable for massive diversion out of state. The LCB currently does not have a functioning pot tracking database after a new software vendor missed its October deadline. MacRae claims the missing tracking system may be allowing pot to sneak out of state during this fall’s harvest.

Regulating Farm Size

Regulators have faced a Goldilocks quandary since they were first writing the rules for Washington’s groundbreaking weed market. Keep farms too small and supply would shrink, sending prices too high to compete with the black market. Allow farms to grow too large and it may increase the incentive to illegally move weed out of the legal system.

A report commissioned in 2013 warned the LCB in clear terms that pot farms that find themselves with more weed than they can sell “may be tempted to divert some of that inventory for sale in the untaxed and unregulated market, including sale for shipment out of state.”
The state once considered not licensing outdoor farms at all out of a number of concerns, including excess demand, but eventually decided to license them. For the market’s first four years farms were limited to 30,000 square feet, but a rule change this summer allowed farmers to purchase and combine up to three total licenses, expanding the potential farm size to 90,000 square feet.

In Oregon, where the legal market has also seen an increase in supply and a drop in prices, the state has no plans to get into the business of reducing farm size, according to Mark Pettinger, a spokesperson for the Oregon Liquor Control Commission.

“It’s not something that is even on the table and it would certainly be a challenge to undertake something like that, because applying it fairly would be seriously difficult,” Pettinger said.

Washington’s new rules about changing the size of pot farms are in the earliest stages, with the final rules not expected to be decided until April of next year. Eide said the board’s goal with the rulemaking process is to “receive suggestions and comments” that can be considered when writing the rules.

It’s clear the LCB is worried about the supply side of the market. This fall, the commission set out to precisely measure the market’s supply by sending four employees to literally hand measure every single pot plant in the state. There are hundreds of thousands of legal pot plants growing at any given month in Washington. The state already requires farms to report the number of plants they have and how much weight is harvested from them but Eide said this additional information – the literal size of each pot plant – was necessary in fulling evaluating the supply side of the market.

“It’s an additional gathering tool that we have with this team that will enhance the picture that we already have,” Eide.

Fall’s Harvest

The fall has always been a busy time for pot harvesting thanks to large outdoor farms, mostly located east of the Cascade Mountains, harvesting their sun-grown crops. Farmers plant their seeds around May and harvest their crops in September and October.

The dry weight numbers for October released by the state likely include only half of what was harvested this fall, thanks to a lag between when pot is harvested and when it is considered cured, or dried. Last year more than 68,000 pounds of cured pot was reported in October while more than 87,000 pounds of cured pot was reported in November. The state releases numbers for how much uncured weight was harvested but those figures are considered less reliable than the final, cured weight. The state won’t likely release November’s figures until next month.

It’s likely this year, just like in 2016, November’s reports will show even larger harvest numbers than October’s. The state also tracks how many plants are removed, or harvested, from farms and pot farmers reported harvesting over 114,000 pot plants in October, that same figure was only about 76,000 in October of last year.

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While this is probably the biggest outdoor harvest in state history, it’s probably not as big of an increase as what the industry saw last year. Last fall’s October dry weight harvest was 96 percent higher than the year before, while this year’s is only 31 percent higher, according to an analysis produced by TopShelfData.com.
Fall’s spike in harvested material is absorbed by the industry in multiple ways, smoothing out the dramatic increase in supply while demand can catch up. Cannabis can be processed into concentrates, made into edibles, or simply held onto by producers while the demand increases. Once pot is harvested and cured it is considered fairly shelf stable and can last for months, if not years.

The decline in retail prices has also slowed down, although it continues to decrease. The average retail price for a gram of cannabis dropped by $2.60 between September of 2015 and 2016. A year later, the price reduced by $1.60 between September of 2016 and September of this year.

Outdoor pot farms are not the sole cause of the market’s massive supply. Indoor farms, which are able to harvest multiple times a year, are able to produce more pot per square foot than outdoor farms, where winter harvests are essentially not possible.