By Peter Robison

Shortages that plagued the start of Washington state's legal marijuana market have eased, sending prices in recreational-pot stores down as much as 40 percent.

Seattle's first pot shop, Cannabis City, ran out of marijuana in three days when it opened in July. Since then, the state has licensed more growers, processors and retailers, increasing supply and reducing prices to an average of $15 a gram, said Randy Simmons, deputy director of the Washington State Liquor Control Board. Prices were as much as $25 a gram in July, including taxes.

Even after the decline, that's still 50 percent more than the $10 gram available on the black market, board officials said in an interview Tuesday at Bloomberg's offices in Seattle.

Challenges remain in the state's attempt to supplant illegal sellers. An effective tax rate of 44 percent on recreational pot is keeping many buyers in the still-unregulated market for medical marijuana, and officials say some applicants for store licenses have lacked financial backing or expertise.

"We had a lot of people seeing it as a gold mine," Simmons said. They underestimated such costs as rent and lab testing, he said.

Colorado and Washington became the first U.S. states to allow recreational sales last year, and voters in Alaska, Oregon and the District of Columbia have also passed legalization measures. Unlike Colorado, which used existing sellers of medical marijuana, Washington built its system from scratch.

So far, Washington has issued licenses for 97 of a planned 334 stores to serve 7 million residents. While the board plans to license 20 stores in Seattle, the city already has as many as 300 unlicensed medical marijuana dispensaries, said Rick Garza, the liquor board's director.

Seattle's city attorney this week proposed closing illegal dispensaries and folding the medical market into the regulated system.

"It makes sense to fold it in," Garza said, citing rampant abuses in which people cite "chronic pain" to qualify as marijuana patients.

Washington has also gone more slowly than Colorado in the market for marijuana-infused foods. The death last year of a 19- year-old college student who fell from a balcony after eating a pot cookie led officials to require smaller doses and new labeling rules.

After initially restricting so-called edibles, Washington has allowed dozens, from Legal Rainier Cherry Soda to Baked Botanicals 420 Party Mix. "What you can't see is how many we've denied," Garza said _ products such as cotton candy, gummy bears and lollipops that might appeal to children.

Those permitted are sold in child-resistant packaging with servings limited to 10 milligrams of THC, the psychoactive ingredient in pot.

The go-slow approach means that Washington's tax receipts haven't yet reached the bounty some supporters promised when voters approved legalization in 2012. Through September, pot taxes had brought in $4.8 million.

"We're not in any hurry," Garza said. "We'll be rewarded for whether we did it right."

(Noah Buhayar and Karen Weise in Seattle contributed to this story.)

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