Tuesday, January 8, 2013

"To make $100k a year, you'd need to produce 19lbs a month..."

Washington State voted to legalize and regulate Marijuana for recreational use in November of 2012.  The initiative split the industry into three parts, producer, distributor and retailers. 

The public comment period for the producer portion closes on February 10th, and they are soliciting comments via email or fax.  You'll find the deadlines and email addresses for comments here. 

I did a public disclosure request to get a copy of all comments received by the state liquor control board.  What follows are selected comments by the public about marijuana producers received to date by the liquor control board. 

"To whom it may concern:
  Thank you for hearing me out.  Right now, if I were to start up again, I could secretly create five pounds a week on a 20 week plant cycle.  I would have 99 plants and create pest, mold and chemical free; top quality marijuana that would sell out before any other pot that I know of.  For each additional three personal that you could provide that number doubles.  With my knowledge and ambition the number is limitless.  I'm not in it for the money.  I'm in it to help this struggling country.  Washington state has one chance to prove to the world that corruption and greed won't take hold in this industry and that it is the foundation of a new America that will be a safer place for our children to thrive long after we our gone.  I pray that we take the right steps together in getting there before time runs out.  This initiative will benefit every one of us if it works.  Please believe in what I say I can't wait to work with you - thank you, Caleb"

"I am very interested in become a producer via license to do so from the LCB. Some speculate that only people with large amounts of money or commercial property square footage will be considered for license approval.  I see this as the perfect opportunity to expand my small company (which I operate out of my home) by branching out into a new and lucrative industry and I know I have the ability to produce a quality product and use initial profits to be able to purchase more square footage that would allow me to grow as a producer.  To wrap it up, please don't make the initial requirements so steep that only big business will have a chance to get licensed.  let the "litte guy" have a chance to prove his ability to be an entrepreneur"
Thank you
Eastern Washington"

"...Make absolutely certain that what ever policy is put in place will have maximum limits on producer per permit/license.  we must not allow r.j. reynolds or the like to dominate production.  Maximum plant count, maximum square footage, some method of controlling quality per license.  Many seniors in this state will supplement their retirements with the revenue derived from these permits..."

"[make sure that the property being licensed] for marijuana production and manufacturing actually exist and that the lien holders of the property actually sign off for this use, as banks will not be allowed to be involved in this type of use due to FDIC rules, they will call the outstanding balance due and payable on knowledge of use of said property..."

"...my wife and I have a small agriculture business called xxxxxxx.  We have 80 acres in the foothills of Mt. Spokane that is mostly trees with horse pasture.  We have been raising various vegetable crops but we have cut back because of health problems... [omitted] ...I would like it to be possible for people like me to be growers.  I don't like the idea of large warehouses and industrial production.  If there were a large number of small producers scattered out there in agricultural areas the ability to rob someone to get a huge score would be eliminated.  [omitted] ...I am a former boy scout leader and registered professional engineer in washington.  I can't think of a reason why people like me shouldn't be considered..."

"By my best educated guess, based on [state estimate of consumption in Washington state] your guess of 187,000 pounds needed...
187000 pounds if there are 100 growers [state estimated # of grower licenses to be issued] then we each need to make about 1870 pounds and that's 7480 plants each making 4oz so since there's about 5 crops per year that's about 1500 plants and about 25 plants each in an 8x12 so that's about 60 8x12 spaces. 
1870 pounds is 848980 grams at $3 each is $2.5 million per year for the grower.  Also 2.5 million for the processor. 
60 spaces is about 6-8 growers each spending an hour per space.  (My apologies for horrible grammar).  I'll be applying.  I have people interested in funding this move.  "

"1.  At $3 per gram [state estimate of revenue to producer] only very large scale operations could exist.  This is counter intuitive to the artisan approach that currently exists.  Currently wholesalers get a little over $5 per gram and even then *only* having 45 mature plants is just a living wage. 
 2.  an above average grower can put 4-6 ounces on a plant in 12 weeks.  if we focus on a 9 week fruiting/flowering strain and take into consideration how much cannabis you claimed Washington state wold need per year and do the math into the 100 growers your theorized would supply 328 stores we get that each grower would need over 1200 plants to supply the 1/100th the required cannabis.  This is assuming the averse yield is four ounces.  This could easily turn into low grade crud that no one wants. ..."

"based on my knowledge and research of the costs of producing the quality product intended at the estimated retail price would mean that the producer would collect roughly $3/grm gross.  After being taxed at 25% by the state the net gross drops to $2.25/gm.  Factor in the cost of production, rent, electricity, water, nutrients, labor and whatever costs the state decides to charge for testing, QC, on top of the $1,000 business license.  The producer will be lucky to net $1.00/gm.  In fact, I doubt that this is achieve able. 

if you plan on doing massive outdoor grows in eastern Washington in the summer months you have to consider a few things.  1) federal intervention 2) inferior quality 502 is lauding.  basically inferior to anything available in MMJ clinics right now. 

Assuming the producer is able to net $1/gm, the producer would need to produce 111.6lbs of cannabis annual to net $50k annual income.  In other words, roughly 20% less a typical bar tender.  If the producer wished to earn a $100k annual income which is considered a middle class income he/she would need to produce 223.3lbs annually or 18.6lbs/month.  Now we are talking a very large operation with up to 60 lights, a massive electric bill, expensive rent for a space that large, a hefty insurance policy, and alot of man power/labor cost, thousands in nutrient cost, grow media, etc.

The most important component is how is this going to be profitable?  My bet is that if this is how the state plans on moving forward it will only explode the black market.  Users will get a better product for there money.  Growers/producers will get alot more money for their efforts will producing less product

...the current MMJ industry is a good model to look at.  They manage to make decent profits even after collecting state sales tax [about 9%].  I bet most of them would not survive a 25% tax burden.  Ofcourse this is all before we've considered, B&O tax and IRS tax as well.  [this guy isn't used to paying any taxes at all...]

Here's some facts to help you consider these comments:  The average income in King county, the wealthiest county in Washington state, is less than $30k a year.   There are hundreds of thousands of people in king county alone that would be overjoyed to net $50k a year. 

$100,000 is more than 95% of the wage earners in Washington state earn, not a "middle class income".  Most college graduates will not earn $100,000 a year, ever.  The comment that says that $100k a year is not enough profit to even be worth doing is pretty representative of these guys. 

Did you make $100,000 a year on your farm last year?  Net?  $50k?   



brentcu said...

That's a well-paid bartender!

How long before the WA MJ utopia turns into tobacco regulation hell?

Or are these going to be like Canadian dairy quotas or NY Taxi medallions (http://www.nycitycab.com/business/TaxiMedallionList.aspx)?

The is fascinating to watch from afar.

Bruce King said...

I have no idea what the rules will look like, but I'm certainly following the rule making process with interest.

Colorado's medical marijuana industry is a $200,000,000 industry at this point. I expect Washington states to be larger.