Purchase any cannabis product through Washington state's legal market, and you'll get a decent idea of what the product is and where it came from.
State law requires all packaging to include information on THC content, as that is the chemical responsible for the intoxicating effects of cannabis.
Producers — state lingo for the business behind the product for sale — keen to promote their name will also include some form of branding. Beyond that, there may be a descriptor like "indica" or "sativa" that can help guide consumers toward a product with the effect profile they prefer.
But one thing you will not see on a label is the size of the operation that produced the product in question.
Visit the website of the producer of a product you've purchased and you're likely to see the business refer to itself as "Tier 1," "Tier 2" or "Tier 3." Those designations are not grades. They are not earned. They are given, and they are permanent.
The tiers are part of a system conceived when Washingtonians were considering legalizing cannabis with Initiative 502 in 2012.
"Going all the way back to when I-502 was developed, we were doing projections before it even passed [and] we were required to put together some analysis on how much it would cost to implement," says Justin Nordhorn, director of policy and external relations for Washington's Liquor and Cannabis Board, or LCB. "We were estimating that there'd be a hundred producers, a hundred processors and 350 retailers. And we assumed for economies of scale, and the like, that they would be larger-production facilities."
That assumption that the state's nascent cannabis market would tilt toward larger producers did not sit well with many Washingtonians who valued the Evergreen State's culture of small, local and family-owned businesses.
"After the initiative passed we started doing town hall meetings across the state," Nordhorn recalls. "I think we had over 6,000 attendees total, and what we heard most commonly was, 'Don't leave small growers out.'"
That was the genesis of the tier system Washington has to this day.
Large growers would be allowed, as the initial plan anticipated. They would be classified as "Tier 3" and allowed up to 30,000 square feet for growing cannabis.
Small growers would be given a path to market as well, classified as "Tier 1" and given up to 2,000 square feet.
Between those would be "Tier 2," which could grow between 2,000 and 10,000 square feet.
For regulators in those early days, the thought process was that the tier system would allow for large producers who could supply the projected consumer demand while also guaranteeing a place for smaller growers in the legal marketplace.
The compromise has worked. There are small growers competing with large ones, which cannot be disputed. The sustainability of this arrangement and level of success of this system, however, is up for debate, depending on who you ask.
THE LOOPHOLE
Under the LCB's initial plan of 2,000-, 10,000- and 30,000-square-foot limits for Tiers 1, 2 and 3, there was an obvious delineation between small, medium and large.
But another regulation has subsequently blown up those clear lines of distinction.
Once awarded a producer or processor license, the licensee can obtain the rights to up to two additional licenses. The state refers to this as "assuming" those other licenses. In practice, it is one licensee purchasing the rights to another's license or, in other words, buying out competitors.
"What we would see is folks purchasing other licenses, if you will, or those businesses trying to assume those [licenses] as long as you don't have more than three producers," Nordhorn says.
The intention of the tier system was to cap large growers at 30,000 square feet in an effort to promote competition and allow room for the little guy to exist. In reality, because licensees are allowed to control not just the license awarded to them initially but to obtain up to three total, the largest of the large can now operate up to 90,000 square feet of growing space.
That is 45 times the amount of growing space initially allowed for Tier 1 growers. In 2021, the state expanded the Tier 1 limit from 2,000 to 4,000 square feet, but that's still nowhere near the limit the richest of the rich in Tier 3 have to work with.
Complicating matters, there is no such room for growth on the retail side to match.
With only 476 retailer licenses in the state of Washington as of 2024, there's only so much shelf space available for cannabis products to be displayed for recreational customers. This is a reality that even Tier 3 growers are aware of.
"The way things are set up is definitely not geared toward elevating smaller grows or making it easier for smaller grows to compete with the others," says Joe Lima, manager of Novo Dia, a Tier 3 producer in Spokane County. "The overproduction of weed from these other places pretty much just makes it impossible to compete as a smaller grower unless you have that client base, unless you have clientele that are loyal to you."
Large producers, especially Tier 3 companies with multiple licenses, are able to put out a constant stream of product, making them the most reliable source of inventory for the limited number of retailers in the state.
"There aren't many Tier 3 indoor facilities in the state of Washington," says Seth Shamberg, the chief operating officer at Blue Roots Cannabis Co., an indoor producer in Airway Heights with a Tier 3 license. "Generally, I would say they're closely associated with commercially produced cannabis for the most part."
Smaller growers simply cannot keep up.
Even large growers are vulnerable to fluctuations in the market. Lima notes that his farm moves between one-third production at times to nearly full production at others, depending on demand.
"One of the biggest mistakes the LCB made doing this whole thing is they gave out way too many grower licenses and way too few retail licenses," Lima says.
THE FUTURE
Washington's tier system has existed almost exactly as it was envisioned since the legal market opened in 2014.
It took thousands of respondents at town hall meetings to push the state away from a bigger-is-better grower model. It was the vociferous outcry from the public that led the state to include smaller growers and create Tier 1.
"People were telling us that if you only allow big operations in, we're going to continue to grow and it's still facilitating illicit market activity," Nordhorn says of the LCB's process as they moved toward opening the legal market. "So the board kind of pivoted in that area and said, 'OK, we're just going to do small grows, and we'll have various tiers to accommodate licensees.'"
The illicit market is now all but eliminated in Washington. Other states still struggle with it, notably California, but Washington's cautious, measured approach has moved almost all cannabis business to the legal side of the market.
There aren't currently plans to alter the tier structure, though there are far fewer Tier 1 producers in the state, which may indicate it's more challenging to be one of the little guys.
"We don't have anything currently scheduled to address any expansions of that nature as it comes to the tiers," Nordhorn says. "That would be within our scope of rulemaking authority, so we wouldn't necessarily need a legislative change, but depending on what people were interested in that could change that equation on whether or not legislation would be necessary or not."
Overall, cannabis businesses are in good shape.
According to the LCB, only 31% of cannabis producers have gone out of business in the past decade, compared to the 65% of all businesses that fail within their first 10 years.
"Obviously nobody wants to lose a business," Nordhorn says. "But when you're looking at [the] average business survivability, I think that the cannabis industry is actually doing better on average than others."
