Pubdate: Wed, 20 Jul 2016
Source: Stranger, The (Seattle, WA)
Copyright: 2016 The Stranger
Author: Tobias Coughlin-Bogue


Last week, I wrote about how the new medical marijuana system created 
under the Cannabis Patient Protection Act (SB 5052) shut out many of 
Washington State's medical marijuana dispensaries. The law required 
that dispensaries obtain a recreational license to continue 
operation, but a loophole in the application process created a black 
market for dispensary employee pay stubs, allowing new actors to game 
the system. I also mentioned that the Washington State Liquor and 
Cannabis Board (WSLCB) blindsided applicants by announcing a cap of 
222 new licenses late in the application process.

What I didn't have space to mention was that the cap itself was based 
on data that even the state contractor that compiled it admits was 
shaky. Given that the medical marijuana market was, by Washington 
cannabis data scientist Jim MacRae's estimate, at one point 
supporting at least 800 dispensaries, and that SB 5052 mandated that 
the state issue enough new licenses "in order to accommodate the 
medical needs of qualified patients and designated providers," how 
did the WSLCB decide on issuing only 222 new licenses?

The decision was based on a study conducted by BOTEC Analysis, a 
California-based research and consulting firm that the WSLCB hired to 
determine just how much of Washington's cannabis market was being 
served by the medical marijuana industry.

According to MacRae, BOTEC's study was inherently flawed and created 
a flimsy foundation upon which to base a decision that would affect 
thousands of patients. "They systematically underestimate values 
commonly known to be higher," he said. "Their results should not be 
used to inform or guide policy or business decisions."

Indeed, by BOTEC's own admission, their analysis was, at best, an 
educated guess. "There's not good data [on the overall size of the 
market] in the past two years, so we essentially just had to make an 
assumption," said Steve Davenport, lead analyst on the report, when I 
reached him shortly after the report was released in mid-December.

Given the absence of an organized tax system on medical cannabis, 
which might have provided a more accurate estimate of sales, BOTEC 
basically had to call up dispensaries and ask for data. "There's a 
lot of uncertainty on both sides," said Davenport, speaking of the 
survey process. "When you ask someone what their revenue is, they 
might have a certain incentive to be dishonest." That incentive 
being, of course, to stay on the good side of the Department of Revenue.

BOTEC surveyed 40 stores and used the responses to build a model for 
average dispensary sales. They then applied that generalized model to 
about 170 dispensaries, adjusting for total open hours, days of 
operation, and other factors.

Their final estimate was based on the survey data combined with the 
data generated by the model, meaning that the estimate for the size 
of the state's entire medical market was based on iffy data from 
about 200 stores. Ultimately, BOTEC listed just 403 operating 
dispensaries in their report, far short of MacRae's estimates. Which 
is his biggest criticism: The size of the market was based off a 
significantly diminished data set.

"The use of CURRENTLY OPEN DISPENSARIES as the fundamental proxy by 
which to 'size' the medical Cannabis market is inappropriate in an 
environment where dispensaries have been the focus of increased 
enforcement and closure over the past year," MacRae wrote on his blog 
in a refutation of the study.

"We're not expecting that it's exactly right," Davenport admitted. 
"The important thing, too, is that that was just a snapshot in time. 
Even before the WSLCB issued new rules, a lot of dispensaries were 
closing down. If we had done our study again a few months later, you 
would have seen a smaller medical figure."

But just because dispensaries were closing-or had been forced to 
close-doesn't mean that the medical market was shrinking.

Even more troubling is that the WSLCB knew there were problems with 
BOTEC's data. In an e-mail sent by Bob Schroeter, the WSLCB's 
director of public records and support services, to BOTEC chairman 
Mark A.R. Kleiman and president/managing director Brad Rowe, 
Schroeter raised several red flags with BOTEC's findings.

"The LCB is concerned that the number of dispensaries BOTEC has 
estimated is very much lower than all other estimates we have seen 
without an adequate reason as to why," Schroeter wrote in the e-mail, 
which was sent in November and obtained by The Stranger. "Equally 
concerning, the estimate of product leaving dispensaries also appears 
low and lacking supporting information... The LCB is concerned that 
without seeing estimates of the number of patients or the amount of 
cannabis that went 'out the door' for dispensaries, we cannot use 
this report to estimate the need for additional stores."

If the study was so far off the mark, and the WSLCB knew it, why did 
they use it? Brian Smith, WSLCB director of communications, declined 
to comment on Schroeter's e-mail, saying the report was "based on the 
best available data at that time." Reached more recently, Davenport 
said that the LCB's concerns had been addressed in the final draft of 
the report. MacRae, however, was still skeptical.

"BOTEC should have known better," he said, "and it would be easy to 
suspect that they may have been pandering to a perception that a 
small estimate was what their client desired. A small estimate made 
the LCB's job easier. It allowed them to decrease the number of 
stores that their overworked enforcement officers and non-armed staff 
have to service."

That's certainly a possibility-but regardless of the reason, it's 
clear that Washington's medical cannabis patients are suffering as a 
result. "The results of the BOTEC study are, essentially, 
meaningless," said MacRae. "Using BOTEC's results (and even assuming 
them to be usable) will hurt people in 2016."
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MAP posted-by: Jay Bergstrom