Getting the Down-Low on DC’s Legal Market

By J.J. McCoy, Senior Managing Editor for New Frontier Data

With an expected draw of about 4,000 people due to participate at the Marijuana Business Conference & Expo at the Gaylord National Hotel outside of Washington, D.C., this week, it seems a likely time to review the legal market in the nation’s capital.

As reported in New Frontier Data’s newly released Cannabis Industry Annual Report: 2017 Legal Marijuana Outlook, sales at the five existing dispensaries during 2016 in the District of Columbia drew an estimated $10.7 million, and are expected to climb steadily in 2017 due to higher purchase and possession limits, and newly enacted patient reciprocity. While there is no established and regulated distribution system for adult use sales, pressure to act has come from growing public support and fears of strengthening an illicit market. A legitimate adult use market is expected by 2020 (despite congressional interference, city officials have been drafting regulations in anticipation of implementing the law).

Over the next eight years the legal market in Washington D.C. is projected to grow at a compound annual rate (CAGR) of 34%, from an estimated $18 million in 2017 to $186 million by 2025.

Though adult use sales would more than triple its market size by 2025, a resident population below 700,000 people limits the District’s total market potential relative to other states’ activating medical and adult use programs. By 2025, D.C. is projected to account for only 0.8% of all legal cannabis sales nationwide.

Resident voters legalized medical cannabis in 2010, but through its control of the city’s budget Congress barred the establishment of medical dispensaries; D.C. was finally able to open medical cannabis businesses in 2013, and there are now five licensed dispensaries and eight licensed cultivation centers. As of January 2017, there were 4,815 registered patients in the city.

In November 2016, the city council passed the Medical Marijuana Reciprocity Act, enacting a reciprocity provision to allow visiting medical cardholders from other states to purchase cannabis in the District. This is expected to have a noticeable effect on medical sales given D.C.’s status as a major tourism destination and travel hub. Additionally, the measure improves patient access by allowing patients to make purchases at any of the district’s five dispensaries, instead of (once the city’s electronic tracking system is finally implemented) from only one.

Although adult use was legalized in 2014 with the passage of Initiative 71, the future of that market remains uncertain. Implementation has been hampered by Congress, which prohibited the city from spending any funds to plan establishment of a legal, regulated market. With possession and home cultivation legal in the District, a thriving illicit market has developed in its absence. With increasing pressure from the public, action toward the public will is expected within the next three years.

Though he represents a different jurisdiction, U.S. Rep. Andy Harris (R-Md.-1st) has become the most vocal leader against legal adult use cannabis in the D.C., partly due to fear of diversion into Maryland. The issue again raises the perennial issue of D.C. voter rights, as the District is not a state and lacks official representation in the Senate, with only a symbolic, non-voting representative in the House.

Delay in implementation of an adult use market has also been aided by a sizable gray market due to home cultivation laws: D.C. residents are legally allowed to grow up to 6 cannabis plants (3 mature), and the city’s law allows users to gift cannabis, but not buy and sell it. As such, several operations have sprouted up recently to charge high prices for other unrelated products, and “gift” cannabis with the purchase of those products. Other companies title transactions as “donations”. Such legal ambiguity has predictably caused headaches for local law enforcement, and represents significant challenges for a regulated market when it is finally implemented.

As the U.S. hub for international relations and international exchange, approval of adult use cannabis sends strong signals to the international community. Legal cannabis in the capital of the country that has been the chief protagonist in the global war on drugs since the 1970s further underscores the changing attitudes worldwide about cannabis policy reform.

Once the city allows for adult use sales, there will likely be diversion of cannabis out of the city into neighboring Maryland, where the medical market is just getting off the ground, and into Virginia, which has no legal medical market. The dynamic is particularly predictable given the millions of commuters traveling in and out of the city every day.

J.J. McCoy

J.J. McCoy is Senior Managing Editor for New Frontier Data. A former staff writer for The Washington Post, he is a career journalist having covered emerging technologies among industries including aviation, satellites, transportation, law enforcement, the Smart Grid and professional sports. He has reported from the White House, the U.S. Senate, three continents and counting.