The Columbian / Associated Press

Pot sales are mellowing out

When recreational marijuana arrived in Washington, prices were still inflated by the black market. A gram of flower in 2014 could sell for $40.

“Those days are gone,” said Jim Mullen, co-owner of a trio of Clark County marijuana stores called The Herbery.

An average gram sells for $8.08 in Washington, according to the state Liquor and Cannabis Board. An agency spokesman said the price has dropped every month after its initial spike.

“It’s simple economics,” Mullen said. “It’s a business, just like anything else. It’s marijuana instead of widgets, you know?”

Competition from more retailers and growers is driving down the price of marijuana flower — the industry’s most sold product. Some predict revenues could plateau soon and local businesses are searching for ways to keep moving forward.

Customer loyalty

Mullen’s strategy for his Vancouver-based dispensaries is simple: Keep the customers happy.

“Our sales, I think, are going to increase because of great customer service, great products and great selection,” he said.

He compares the stores to Cheers, the Boston bar and setting for the 1980s sitcom of the same name, hoping they can become a place where customers have rapport with staff and return for a welcoming environment.

“It’s not just order off the menu and get them out the door,” he said. “It’s not uncommon to spend a few minutes talking with our budtenders about what’s new.”

Customer loyalty may become increasingly important as market forces drive down marijuana’s profitability. Clayton Mosher, a sociology professor at Washington State University Vancouver and author of a forthcoming book about marijuana policy, believes sales are heading for a plateau as demand hits the ceiling.

“We’ve had sales now for two-and-a-half years in Washington; I think the people that are going to use it have decided they are going to,” he said. “I don’t think that (new user) demographic is going to increase at all.”

Sales trends in Clark County lend credence to the theory. Revenues rose early on as marijuana first hit the shelves, but those revenues leveled off considerably in 2016. Dispensaries that have been open since the beginning saw sales peak in the latter half of 2015. Collective tax revenue for Clark County dispensaries has declined four out of the last five months.

Retailers say the price is falling as more marijuana flower has flooded the market. According to the state Liquor and Cannabis Board, flower harvests grew from nearly 60,000 pounds statewide in fiscal year 2015 to 226,500 pounds a year later. Flower comprises 60 percent of recreational marijuana sales, according to a 2016 report by the University of Washington Cannabis Law & Policy Project.

“This is not an exaggeration: We’ll get a call or a producer will come by with samples no less than twice a week,” Mullen said. “The majority of those are new companies that are starting up or are trying to move into a new market.”

Mullen said he used to buy directly from eight growers — now he buys from over 30.

‘Fighting for the consumer’

Prices are also falling as retailers try to get an edge over their own competition. Washington licensed over 200 new retailers just last year and Oregon’s own market came online in 2015. Portland alone has 125 approved dispensaries, according to the Oregon Liquor Control Commission.

“In the old days, we saw 80 percent Oregon IDs” from customers, said Ramsey Hamide, co-owner of Main Street Marijuana. “Now it’s 80 percent Washington IDs. People are definitely shopping closer to home these days.”

Hamide’s store runs at a higher clip than most. A Friday afternoon crowd will flock around glass displays while workers in moss-colored shirts dive through the fracas. It’s friendly and lively, but there is definitely a premium on transactions, Hamide said.

“You’ve got to get more people through the door to make the same amount of money,” he said in a recent interview. The company also opened new locations in east Vancouver and Longview.

Its location in Uptown Village sells marijuana flowers for $6 to $12 per gram, and he said that the low-end price will likely fall to $4 per gram by spring.

The dispensary hopes to offset the price drop with more volume. It already logs between 1,500 and 2,000 transactions per day, and added online ordering and an express lane in the hopes of clocking even more.

It’s a familiar hustle for Hamide, who spent years with his brother reselling and wholesaling event tickets before graduating from the University of Washington with a business degree. Their drive to be the top destination in the Portland metro area has led them to beat the prices of their competitors — who then respond with their own price cuts.

“We get a lot of pushback from other stores,” Hamide said. “We get a lot of pushback from vendors who think what we’re doing is bad for the industry. But I’m fighting for the consumer. I don’t know how that’s bad for the industry.”

It appears to be working. Main Street Marijuana is the highest-grossing dispensary in the state, raking in more than $1.3 million per month.

“Not a lot of people have disposable income to waste, and they seek out the best deal,” he said. “The second we get a better deal (from producers) … we change our price.”

What’s next?

The price drop has not been unexpected. Before voters approved the legal marijuana marketplace, many predicted prices would be driven down by market forces.

Marijuana tax revenues are part of a multipronged funding package to hire 61 positions at the Vancouver Police Department. Revenues fell from $790,500 the first fiscal year to about $500,000 the second.

No positions will be impacted by the decline, according to Natasha Ramras, the deputy finance director for the city of Vancouver. She said the city budgeted for marijuana tax revenues to hover around $500,000 after the initial spike.

“We knew once Oregon matched the law we would lose, as a city, the revenue because those sales would go back,” she said.

For retailers, though, it may mean a bumpier path forward. Mullen said some local, industry peers are struggling. While licensing restrictions will keep Washington from being flooded with other retailers, Mosher suggested those without high sales may want to cultivate customer loyalty.

“People actually like established relationships with their budtenders,” he said. “They say, ‘I only go to The Herbery, or I only go here.’ ”

For others, business is business. Hamide said Main Street Marijuana will position itself to sell flower at the lowest prices, even if it means buying out competitors’ liquidation sales.

“People are either going to get it or they’re not. The one’s who don’t get it are going to go out of business,” he said. “When they go out of business, they’re going to have clearance sales and guys like me are going to scoop it up at an even cheaper price.”

Other marijuana products such as edibles and concentrates could become more important, as well. While those products don’t sell as much as flower, their prices have not fallen as much.