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Washington: Marijuana Shops Burning Profit On Taxes

Jacob Redmond

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Brawny security guards often stand outside Cannabis City because a lot of money changes hands inside. Problem is, not a lot of that cash actually stays there.

"There's a lot of cash going to the state," said owner James Lathrop.

Cannabis City is Seattle's first recreational pot store. The last 7 months haven't been the gold - or green - rush its entrepreneur owner expected.

"I really had no idea how much of a tax disaster it would be," Lathrop said.

Lathrop estimates he's left without about 10 cents for every dollar spent after taxes.

"To pay my rent, to pay my employees, to pay my banking to pay my insurance," he explained.

To cut out some of the red, stores started bundling products. Wednesday, the Liquor Control Board enacted an emergency ruling to stop it, referencing an example where a shop sells a "lighter for $20 which includes the purchase of 1 gram of marijuana for two dollars to avoid paying the requisite taxes on the marijuana."

Lathrop says they didn't engage in the practice, but calls it an act of desperation.

"You can actually be going in the hole with every sale," he said.

Cannabis City triples the wholesale price of pot products and still barely breaks even every month. They see 300 customers on weekdays and 600 on weekends.

"And you can function on a tight margin with very high volume," Lathrop said.

But he believes stores with less volume likely won't survive unless taxation is addressed. He expects it'll be years before survival turns to profit.

"We're here for the long haul," he said.

The legislature is currently considering changing the recreational pot tax system. One suggestion is to turn the state excise tax into a sales tax so shops can write it off as a business expense.

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