Adam Markus says he never planned on getting rich when he applied to open a marijuana retail store in Union Gap. And despite bringing in more than $440,000 in sales since July, operating expenses are keeping Station 420 in the red financially.
"We have yet to make a profit here," Markus said. "And there are a lot of other people who got into this just thinking they were going to be millionaires in a year, and now they're having a hard time."
This despite the fact that sales have picked up statewide ever since the first stores opened this summer – the $15.6 million in sales statewide in the month of November was more than double from August – and business owners say prices have come down by as much as half since July as supply increases.
Part of the problem for retailers is that prices of legal pot are roughly double those on the black market. Markus said he sells a gram for $30 on average, or more than $800 an ounce.
"That's still probably 60 percent less than what I charged when we opened," he said.
The legal product is safer and higher quality, said Mary Van De Graaf, owner of the marijuana shop at Mill Creek Suite A in Union Gap, but some would still rather spend less.
"I don't think we're drawing a lot of the black market customers," Van De Graaf said.
The pricing problem is much bigger than just supply and demand, or even the 25 percent excise tax levied by the state on marijuana retail sales. Retailers are bracing for a federal tax collection based on an obscure law from 1982 that taxes businesses that sell illegal products, which industry analysts say is likely to be enforced.
The Internal Revenue Service could try to collect anywhere from 50 percent to 75 percent of sales, said Hilary Bricken, a Seattle attorney who specializes in representing marijuana businesses for the Canna Law Group.
Bricken said marijuana retailers don't get to count the same deductions other business owners have when paying taxes. None of the costs of running the business, such as utility bills, rent or employee pay, or the state excise tax that is factored into the price, are expected to be deductible, Bricken said.
"A year from now, we're going to see a great drop in the number of cannabis businesses out there because of this," Bricken said.
Although legal under state law, marijuana remains an illegal Schedule I drug under federal law. Bricken said marijuana has to be taken off that list in order to relieve business owners of the threat of a federal tax.
"It's going to take an act of Congress, and to my knowledge there is no legislation out there that has any chance of passing," she said.
Station 420 posted $443,510 in sales since July, according to the most recent filings with the state Liquor Control Board. Mill Creek Suite A has brought in $123,718 in sales in roughly the same period. A third marijuana retail store, The Slow Burn, is expected to open in Union Gap this week.
In Prosser, the marijuana retail store called Altitude has posted $939,149 in sales since July.
Van De Graaf runs two businesses out of the same building in Union Gap, with the other being Mill Creek Natural Foods, which she has owned and operated for years. Having the other business and relatively little overhead, Van De Graaf said there aren't as many demands on her profits after taxes.
She said she expects to take a big hit financially after the federal tax collection, but will be in the business "for the long haul."
"We're the pioneers," Van De Graaf said of the new retail industry. "We're the ones who will be pushing through and getting things changed and making it better for people that want to do it."
Bricken says those pioneers will have to be savvy and lean in order to survive. She said she doesn't believe prices will ever match the black market because of how heavily regulated the industry is, so they'll have to adopt the best business practices to stay competitive.
As of now, it's not entirely clear what the best business model is.
"You need to be talented and you need to be cost-conscious, and many of these people are not," Bricken said. "But over time, the cream will float to the top."
Despite not making a profit yet, Markus says he's optimistic. His store has diversified its product line, selling up to 40 strains now, compared with six in July. And sales have increased.
"There are a lot of positives. Our business is still growing," Markus said. "I think it's going to get better."
- The spelling of Mary Van De Graaf's first name has been corrected.
News Moderator: Shandar @ 420 MAGAZINE ®
Source: Yakima Herald Republic | Home
Author: Mike Faulk
Contact: Yakima Herald Republic | Contact
Website: Yakima Herald Republic | Pot shops hard-pressed to match black market prices
"We have yet to make a profit here," Markus said. "And there are a lot of other people who got into this just thinking they were going to be millionaires in a year, and now they're having a hard time."
This despite the fact that sales have picked up statewide ever since the first stores opened this summer – the $15.6 million in sales statewide in the month of November was more than double from August – and business owners say prices have come down by as much as half since July as supply increases.
Part of the problem for retailers is that prices of legal pot are roughly double those on the black market. Markus said he sells a gram for $30 on average, or more than $800 an ounce.
"That's still probably 60 percent less than what I charged when we opened," he said.
The legal product is safer and higher quality, said Mary Van De Graaf, owner of the marijuana shop at Mill Creek Suite A in Union Gap, but some would still rather spend less.
"I don't think we're drawing a lot of the black market customers," Van De Graaf said.
The pricing problem is much bigger than just supply and demand, or even the 25 percent excise tax levied by the state on marijuana retail sales. Retailers are bracing for a federal tax collection based on an obscure law from 1982 that taxes businesses that sell illegal products, which industry analysts say is likely to be enforced.
The Internal Revenue Service could try to collect anywhere from 50 percent to 75 percent of sales, said Hilary Bricken, a Seattle attorney who specializes in representing marijuana businesses for the Canna Law Group.
Bricken said marijuana retailers don't get to count the same deductions other business owners have when paying taxes. None of the costs of running the business, such as utility bills, rent or employee pay, or the state excise tax that is factored into the price, are expected to be deductible, Bricken said.
"A year from now, we're going to see a great drop in the number of cannabis businesses out there because of this," Bricken said.
Although legal under state law, marijuana remains an illegal Schedule I drug under federal law. Bricken said marijuana has to be taken off that list in order to relieve business owners of the threat of a federal tax.
"It's going to take an act of Congress, and to my knowledge there is no legislation out there that has any chance of passing," she said.
Station 420 posted $443,510 in sales since July, according to the most recent filings with the state Liquor Control Board. Mill Creek Suite A has brought in $123,718 in sales in roughly the same period. A third marijuana retail store, The Slow Burn, is expected to open in Union Gap this week.
In Prosser, the marijuana retail store called Altitude has posted $939,149 in sales since July.
Van De Graaf runs two businesses out of the same building in Union Gap, with the other being Mill Creek Natural Foods, which she has owned and operated for years. Having the other business and relatively little overhead, Van De Graaf said there aren't as many demands on her profits after taxes.
She said she expects to take a big hit financially after the federal tax collection, but will be in the business "for the long haul."
"We're the pioneers," Van De Graaf said of the new retail industry. "We're the ones who will be pushing through and getting things changed and making it better for people that want to do it."
Bricken says those pioneers will have to be savvy and lean in order to survive. She said she doesn't believe prices will ever match the black market because of how heavily regulated the industry is, so they'll have to adopt the best business practices to stay competitive.
As of now, it's not entirely clear what the best business model is.
"You need to be talented and you need to be cost-conscious, and many of these people are not," Bricken said. "But over time, the cream will float to the top."
Despite not making a profit yet, Markus says he's optimistic. His store has diversified its product line, selling up to 40 strains now, compared with six in July. And sales have increased.
"There are a lot of positives. Our business is still growing," Markus said. "I think it's going to get better."
- The spelling of Mary Van De Graaf's first name has been corrected.
News Moderator: Shandar @ 420 MAGAZINE ®
Source: Yakima Herald Republic | Home
Author: Mike Faulk
Contact: Yakima Herald Republic | Contact
Website: Yakima Herald Republic | Pot shops hard-pressed to match black market prices
