Washington state is a trailblazer in the legal cannabis world as one of the first states to pass adult-use. This well-established adult market has been wildly competitive yet seems to have found its equilibrium with license fees and population to license ratios at industry lows.
Moreover, with 473 dispensaries to 452 beer, liquor, and wine specialty shops, the cannabis market is on par with the alcohol market, removing any hopes for a golden ticket for license holders.
Vertical integration is prohibited in the state, and no single operator can have common ownership of more than three dispensaries, inhibiting economies of scale and industry profitability.
Until the regulatory regime changes, building brands with consumer demand pull may be the only way to generate acceptable returns.
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The Evergreen State is a mature West Coast market that has not been very welcoming to out-of-state investors, though signs indicate this is changing. However, until the regulatory framework does change, even "in-state" consolidation at the retail level will prove problematic.
For now, the best play in the state is to be a low-cost producer with strong brands. With the state making a killing on the industry's excise taxes, we expect change to be slow. That said, investors and MSOs would be wise to keep an eye on this sizeable market, as in-state operators will eventually clamor for a loosening of the regulations hindering MSOs' ability to acquire here.
*Three cultivation license tiers: Tier 1 allows up to 2K sq.ft., Tier 2 allows 2K-10K sq.ft., Tier 3 allows 10K-30K sq.ft.