Reminder to Patients: This is a FEE-based marketplace, not a Donation-based one. Where you spend your dollars is, I’d imagine, a very personal decision. It is also an important one. It is one with consequence.
As of late this past week (13 days into the unified MoM (Market of the Man), approximately 1,400 Washingtonians had signed up and registered in the Patient Database Registry Self-Incrimination System. Let’s assume they hit 1,500 sick folk by weeks’ end … that implies that 0.028% of the 5.3 million Washingtonians over the age of 21 are now, officially, Patients. It would be a smaller percent if one were to take the 18+ year-olds into account. I did not bother to check if any of the 1,400 were 18-21-year-old “tweens”, but I gather somewhere just shy of 100 of the registrants are “designated providers”, which likely represents someone caring for either a child or for a Patient unable to make it to the appropriate storefront cum dispensary.
In any case, we appear from these numbers to be a surprisingly healthy State. The DOH and the WSLCB (let alone BOTEC and the UW) must just be patting themselves on the back right now. Looks like 342 square feet might just supply the medical market after all, eh? All is looking good, Governor Jay …. all is looking good ….
Sarcastic bullshit aside, I am a firm believer that decisions should, when possible, be as well-informed as is feasible. In that spirit, I thought I’d do something to help those new to WA’s non-donation-based dispensary system. This post may also address some recent commentary and questions that went up on 502Cannabis regarding why State-legal Cannabis costs what it does and which of the folks involved in getting those millions of grams of bud out to WA adults is most benefitting from the dollars being paid by consumers for that very bud (see, Frank … I’m paying attention … the 60BC’ers will be seeing a lot more of this than will most people).
I’ve heard a number of people in the industry that I generally assume to be well-informed repeat the soundbite that “the consumer dollar is split roughly evenly between the Retailer, the Farmer and the Tax Man“. I thought I’d look into that assertion and share some of the results of my work with those of you learning your way in the new market. As it turns out, they were wrong (on average).
Two things are included here for you today – an overview chart showing a theoretical example where the Retailer “makes” $10.00 from you for a gram (and the tax-man makes $3.70). That chart uses the often maligned pie to convey the relative split of the $13.70 you, the Patient, would part with for this theoretical now-medical-because-it-is-labelled-as-such gram. After some verbiage from me, I then include a table that includes some numbers using a fixed price for the farmers and some different out-the-door prices for Patients, that shows you some more real-world pricing examples for your cost.
As will usually be the case in these non-commercial (public) glimpses into the tools I’ve developed to support my consulting practice, I’m not going to share too much of the specifics of my methods and/or metric definitions. Comments on HI-Blog can be used to address any questions that arise (if you have some, you are probably not the only one … I know how my early-morning weekend writing can get). Seriously — ask … .and challenge me if you see anything that looks ignorant/wrong … it might well be ignorant and/or wrong and I would love your feedback …. it truly helps to make what I’m creating better. I don’t like being wrong, but I hate bad work of mine misinforming others (and me) … and that is what bad work left unchallenged tends to do.
As a side note: This is likely why I’m disappointed with the University of Washington Cannabis Law & Policy Project’s position regarding the recent student project they submitted that used BOTEC’s flawed methodology.
My disappointment increasingly extends to the WSLCB for calling the work-product of the UW’s doomed effort “research” and highlighting it as a resource on their website … but that is for an upcoming post. I know the dedicated public servants down in Olympia are busy keeping us safe from the poisons that are alcohol and nicotine, as well as trying to keep recreaters and Patients safe from the “poison” that they think Cannabis is. I think increasingly that they must not really believe it to be medicine and think, therefore, it should be regulated like the sin-drugs they know and love.
The following chart takes a theoretical gram of flower that a Retailer “makes” $10.00 of gross revenue from (before paying the Farmer and other expenses). As a Patient, you will be charged the excise tax on top of this (at 37%). In Protecting the Patients, our legislators compassionately leveraged their legislative pens in 2SSB-5052 and thereby saved you the State and local sales taxes paid by the recreational portion of the market. As a result, the other 9% or so tax that non-registered-and-non-databased Patients have to pay is not included in the chart or the table below. Everything that follows refers to flower only (buds, joints and cones combined).
Upon digesting this pie, you may have noticed that your FEES are, on average, differentially grabbed by the Retailer in this market (based on data as it existed in Jan-April, 2016). It is NOT a 33/33/33 split (with 1% apparently left over for me). Forget the whole ethical grand-mal seizure that taxing medicine represents — of what is left, the RETAILER is getting (on average) over 2/3 of your dollars (the only remaining variable here being how much they pay the farmers … I’ve set it at $3.17 per gram in this example).
The Farmers that have nurtured the little ladies (and those males integral to the vibrant genetic base of the industry) along for months and have prepared them for market and have duly labelled them about 3 times more than they should have to are getting less than a quarter out of every dollar you drop in a typical retail store today (today being based on the first 4 months of 2016).
A big thing to note is that Retailers are absolutely smacked by an IRS tax thing meant to collect tax from drug smugglers and pushers and other undesirables. The best way I’ve found to think of it (thanks to Vito and Bob for helping me along with my understanding on this topic) is that pretty much every cost of doing business for a Retailer actually costs them (when tax time is taken into account) about 1.5 times what they pay out-of-pocket for it. For example, that $15.00 per hour position is, actually, a $22.50 per hour position (not including any benefits … which would ALSO cost the Retailer 1.5x what they actually cost).
I do sincerely believe that the Farmers could seriously and urgently use a bigger slice of the revenue pie than they are currently getting, but I’ll let better-informed parties argue the point. One thing to remember is that this chart (and the table that follows) show averages and examples based on scenarios that the detailed data suggest are reasonably “typical” and/or “realistic” in the market as it existed earlier this year. Actual prices will be a bit lower (on average) today.
OK: Part 2 of what I promised you today —
Here’s a table that shows examples that are a bit more representative of what you are likely to see out there in the market where the Retailer (for mainly cash-management and consumer-throughput reasons) generally asks for an even dollar amount per gram. The table includes $14.00 per gram, the $13.70 corresponding to the pie chart you just digested, and $12.00 and $9.00 to capture a bit more of the price range that seems to be dominating the State-legal access points these days. In all cases, these are all-in, everthing-included out-the-door prices to the patient-in-the-Registry. Non-Registered Patients and non-Patients would have to figure in sales tax, as well.
The markups and multiples are done the way I always define them. If you have a question on what these mean, take a moment to look at the relative size of the PAID TO FARMER and the PRE-TAX INCOME TO RETAILER values in the table below, as both markup and multiple are derived from those. (e.g., $6.83 is 2.15 TIMES $3.17, and the markup takes out the initial $3.17 and makes it into a percent “growth” (for return-on-invested-capital type assessments). For simplicity, I’ve set the dollars paid to the Farmer per gram at $3.17 …. this falls in the “bulge” of the pricing distribution for the state.
Here is the table:
The key thing is that the ratios in these examples are fairly robust estimates of the reality you are about to face (assuming, as the table does, a constant per-gram price to the Farmer that translates into about $1,440 per pound of bud).
Enough of that, for now. I truly hope you found this useful.
Please stay tuned for a listing of the stores in the State that fall at both ends of the distribution of “Markup”, (not as defined above, but defined by how much each Retailer is actually paying for the flower vs. what they are charging for it (in Net Revenue to Retailer terms). I have a full list now, and there were some surprises for me in it … I want to ensure it’s good to go before releasing, as I think I’ll share both ends of the distribution with you.
After all, your medical dollars will not go as far now that The Man insists on taking more than 25 cents of every dollar you spend on the non-FDA-approved medicines that you have come to depend upon. If you have to spend such money, you may want to ask yourself whether you differentially want to help the Farmers that have created this market and that have created the diversity of products you find on the Retailer’s shelves. It is, as I mentioned, a personal choice. I’ll try to help you choose “wisely” (e.g., in a better-informed manner). I, personally, want lots of successful artisan farmers who each raise the bar for the others dynamically and continually, so that they (and we) can dominate this market, nationally (and Internationally) when the times allow. All consumers (even the lovers of Bud-style “bud”) benefit from such a market. Aspiring monopolists, maybe not so much.
As a teaser: my working labels for the two segments of Retailers that will be listed are: TRUMPS and BERNIES (Demons and Angels are my sub-group labels for the most extreme of the extremes).
Guess which group appears to be sharing their wealth to a greater degree (and, thereby, not getting quite as much for themselves) and which group is squeezing their suppliers and/or bleeding their customers more (and, thereby, getting quite a bit more for themselves)?
One last rhetorical question (and no hyphenated word-streams, for a change):
Would the Supreme Court that sits today agree that those State-Legal Cannabis stores falling in the former category are only behaving as modern disenfranchised people can reasonably be expected to do, or would the Court try to enable a legal framework that provides those stores and their controlling entities a valid reason to behave as real people should behave while creating a new medically-impactful marketplace with a reasonable expectation that positive business results might then follow?
I should have a list of top/bottom markup stores out within a day or so (now looking to be Wed, July 20), assuming no cease-and-desist orders crop up in the next 48 hours … keep an eye out at www.highintelligence.org
Let me know what you think of these Patient Service Announcements. I’ve been impressed with the traffic on my site over the past few days … I’d love to hear your feedback, which is best supplied using the comments box at the bottom of my posts.