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Investing in Washington State Marijuana

Why Washington State's Pot Industry Could be the Most Profitable

Written by Briton Ryle
Posted July 9, 2014

waspotThe dominos are starting to fall.

Just six months ago the state of Colorado became the first jurisdiction to legalize the recreational consumption of marijuana. This week it was the state of Washington’s turn to drop its pot prohibition, handing-out its first recreational marijuana retail licenses this Monday. And there are at least eight other states lined up behind them that are either considering or are already in the process of doing the same.

But while Colorado has had a six month head start over Washington in creating a whole new industry around the cannabis plant, don’t be surprised to see Washington overtake Colorado in marijuana grow-ops and production.
It’s not so much that Washingtonians are more given to smoking marijuana than Coloradans. It has more to do with the plant itself. Cannabis is a pretty demanding weed, and Washington seems better equipped to fulfill its needs more so than Colorado.

What’s That Haze Over Washington State?

The peculiarly smelling haze over the state of Washington is the bellowing cloud of a new industry all fired up and ready to make money. Everyone is fired up and ready to take part, from marijuana growers to retailers to consumers, and of course, even the state taxman.

“The producer is taxed at 25%,” John Evich, owner of the newly opened Top Shelf Cannabis in Bellingham starts to run-down the string of taxes. “Then the processor trims it and packages it, and that's taxed at 25%… Then, once we sell it, we have a 25% tax. So you're at 75% tax on the product from seed to sale.” That’s enough to get even an accountant high.

In Colorado’s experience with marijuana sales, some $10.8 million in sales tax have been raised in the first four months of this year, on track to meeting the full year projection of $40 million. More than 100 licensed retailers and some 800-900 growers have created as many as 15,000 jobs across the state. By the end of its first year, Colorado’s marijuana industry for both medicinal and recreational consumption is expected to grow to $1 billion in value.

Washington state seems eager to tap this potential. Starting with just 25 licenses issued Monday, officials are confident their industry will grow to Colorado’s size and beyond, as another 334 license applications have already been received. Yet it will be slow going at first, due to a supply shortage in the face of an overwhelming demand.

James Lathrop, owner of Seattle’s Cannabis City, opened his store with just 10 pounds of marijuana to sell, barely 160 ounces. Adam Schmidt, owner of Clear Choice Cannabis in Tacoma, decided not to open his shop at all this week until he has enough inventory. “I don’t want people to be waiting in line for four hours, and then I have to come out and tell them we don’t have any more,” he wisely contemplated.

While the law permits consumers to purchase up to an ounce of pot per visit, the shortage has forced some retailers to limit purchases to just two grams per customer, or 7% of an ounce, in order for everyone to go home “happy”.

But recreational pot enthusiasts need not fret. Given such a high demand it is only a matter of time before the supply will be filled. There is just one problem that might get in the way… Mother Nature is very selective.

A Very Thirsty Plant

While most cannabis growers trim their plants down to a manageable size, a marijuana plant can grow as high as 8 to 11 feet, and will consume as much as 6 gallons of water per day. An average person’s daily shower uses 18 gallons of water, or as much as three marijuana plants. Individually, then, it might not seem like much.

But when you consider that an average marijuana farm can have as many as 500 to 1,000 plants, now we’re talking some really big numbers. (One illegal pot farm in California covering some 20 acres had as many as 32,000 plants.)

Just an average-sized grow op with 1,000 plants can consume as much as 6,000 gallons of water per day, which is the same amount of showers taken by 333 people, or all the tenants of some 6 apartment buildings.

Multiply that by some 800-900 known marijuana farms in the state of Colorado alone, and we arrive at some very ridiculous numbers surpassing 4.8 million gallons of water each and every day in Colorado alone.

To put that in perspective, a 2005 U.S. Geological Survey estimated the average American uses/consumes a total of 98 gallons of water per day. Thus, Colorado’s pot growers are using as much water as nearly 49,000 people, or an average small town.

In California the numbers are outright absurd. As California Fish and Wildlife Senior Environmental Scientist Scott Bauer revealed, “There isn't going to be enough water to meet the pot industry's growing demand. Just the illegal marijuana plants confiscated in California by law enforcement in recent years — between 2 million and 4 million annually — use upward of 1.8 billion gallons — or about 600,000 water tanker trucks - over their five-month growing season, based on the average water usage documented in the study.”

That’s 12 million gallons of water per day, or as much as a small city of over 122,000 people, in one of the driest states in the country. Even while illegal there are already over 600 known marijuana farms in California. Imagine the impact when the state makes recreational pot legal.

“Streams in Northern California's prime marijuana-growing watersheds likely will be sucked dry this year,” Bauer fears. “Essentially, marijuana can consume all the water. Every bit of it.”

Colorado is already experiencing “water wars” between pot grow ops and conventional farmers. Crops like corn and wheat are already stunted if not dead from a lack of water in the mid-west, with aquifers being depleted at an alarming rate.

This is where the state of Washington might have an advantage, along with its neighbour to the south, Oregon - they being two of the wettest states, as noted in the map below.

jcpot1
Source: North Carolina State University

Where most of Colorado lies in the 12 to 20 inches of rain per year belt, with most of California in the 5 to 12 inch belt, the west coast of northern California, Oregon and Washington receive some five to twenty times more rain, surpassing 100 inches per year.

Some Planning Required

So while the flood of tax revenues might be causing state governments to salivate, what’s required to keep it coming is a flood of fresh water. A little planning needs to be done before permits can be handed out en masse.

All across the U.S. there is a shortage of fresh water, and regions whose water supply is already over burdened by conventional farming would be wise to simply let the growing of pot take place somewhere else. There is nothing wrong with issuing retail pot licenses alone, and holding back on cultivation licenses in regions that already suffer a scarcity of water.

In this respect, the legalization of recreational pot may trigger the development of yet another new industry – the fresh water business. The dominos of legal pot have already started falling, and there is no way to stop that chain now. So officials need to start planning.

One crucial sector they must not neglect is the building of watersheds and perhaps even man-made lakes in the Pacific northwest, with a few long-distance pipelines to carry that water to the south. And it wouldn’t be just for the pot growers. Think of all the conventional farms that would gladly buy some of the extra water.

Expensive? Just take it out of the pot taxes. The whole industry from growth to consumption can easily support itself.

Joseph Cafariello

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