A market analysis report shows that Washington has seen a decline in cannabis sales over the past 12 months. It is also the first year in which regulated pot sales have fallen in more than a decade. Headset, a cannabis data analysis company, reported that retail sales of cannabis fell more than 8 percent between July 2021 and June 2022.

After two years of high growth in Washington, the drop in cannabis retail sales was largely due to the rise in COVID-19 sales and subsequent shutdowns of many non-essential businesses. Washington, like many states that have legalized cannabis, has designated marijuana retailers essential businesses. This allows them to continue operating during lockdowns. 

“From March 2020 to March 2021, legacy cannabis markets saw drastic increases in growth,” Headset wrote. “In the beginning months of the pandemic for example, Colorado’s total adult-use sales grew by 63% from February to July 2020.” 

The average Colorado monthly sales increased by 25% over the previous year, and Oregon’s monthly sales rose by 36%. Brian Smith, a spokesperson for the Washington State Liquor and Cannabis Board, said that last year’s drop in sales is the result of post-pandemic economic conditions.

“What you’re seeing as a ‘dip’ is really sales returning to normal growth as more people returned to in-person work,” Smith said in a statement quoted by The Seattle Times.

According to the data, there was a decline in consumers visiting cannabis retailers more often and a reduction in how much they spend each visit. Headset’s analysis showed that the average transaction recorded at licensed cannabis retailers in Washington dropped by almost three dollars, from $34.14 in July of last year to $31.41 in 2022.

Aaron Smith, the founder and chief executive of National Cannabis Industry Association said that retail sales have been declining in all states which legalized recreational marijuana. Headset’s report revealed that Oregon had seen a decline of nearly 10% in cannabis sales, and Colorado saw sales drop by more than 11%.

“This is not isolated to Washington state’s cannabis industry,” Smith told The Center Square via email. “We’re seeing similar trends across the country.”

Legal Cannabis Industry Hit by High Taxes

Smith, like many others in the cannabis industry, believes retail marijuana sales are falling because tax rates on regulated cannabis can be high compared with other industries. This makes cannabis more appealing to illicit buyers who already face higher prices for consumer goods due to international supply chain issues.

“I believe the primary factor at play is inflationary pressure driving more consumers to procure cannabis in the underground, unregulated market,” Smith said. “Heavy taxes and regulatory burdens on our industry make it very difficult to compete with underground cannabis providers who pay no taxes at all and have no need to follow the state’s rules and regulations for producing and selling cannabis.”

Brian Fitzpatrick, chairman and CEO of Qredible, a cloud-based compliance platform for the cannabis industry, notes that taxes on cannabis in Washington are among the highest in the industry, totaling more than 46% in taxes when the state’s excise and sales taxes are combined.

“My fear is that this constant pressure from the significant taxes will cause companies to cut corners and cost in areas of quality and compliance just to compete with the illicit market,” Fitzpatrick wrote in an email to Chronic News. “The dangers of the illicit market are clear – they lack safety and regulation standards. If the government wants to promote safe and compliant usage, it should reconsider some relief on the excise taxes.”

Washington CannaBusiness Association believes that taxes are a barrier to legal cannabis’ growth.

“On the margins, this high rate may be pushing some consumers to purchase their cannabis products from the unregulated, untaxed, illicit market,” the industry group said in a statement.