Despite increasing sales, legal pot businesses warn of impending disaster if changes not made

The amount of legal pot sold in our state continues to increase each month since Washington’s first retail stores opened last summer.

The Washington State Liquor Control Board reports sales of nearly $18.5 million in January alone.

But the industry is sending up red flags, warning a number of problems from high prices to a glut of pot threatens to derail the burgeoning recreational market.

A steady stream of customers filed through Seattle’s Cannabis City in the SoDo neighborhood on a recent weekday afternoon to buy legal marijuana. Despite strong sales, general manager Amber McGowan says the shop and many others are struggling to make a profit under the weight of heavy taxes that have kept prices sky high compared to the street and the dozens of unregulated medical marijuana outlets operating around the state.

“It’s definitely been difficult to compete against the black market because at this point our prices are three times what you can get it for on the black market or at any MMJ [medical marijuana dispensary],” says McGowan.

Boris Gorodnitsky is the co-founder of Seattle-based New Leaf Industries, one of over 400 licensed pot producers and processors in the state.

He says the current three-tier system that slaps a 25 percent excise tax on pot at the grower, processor and retail level on top of other city, state and federal taxes and federal tax laws that prevent write-offs are making business untenable.

“Our solution is to consolidate those taxes into a single sales tax that’s charged at the point-of-sale,” says Gorodnitsky.

Beyond taxes, Gorodnitsky and other growers say the liquor control board has allowed far too many to get licenses, resulting in a huge glut of pot they can’t sell, or are being forced to sell at a loss.

While the rules limit the total amount of pot that can be grown, the state has licensed over 400 growers and many more applications are pending.

“We relied on our partner, the state, to keep production tight, and they went out and did the exact opposite of that,” says the grower of a Seattle grow operation who didn’t want his name used out of fear of retribution for criticizing both the state and retailers, who he accuses of taking advantage of the glut by paying far less than it costs to produce pot.

“They’re killing us. It doesn’t take a mathematician to say if you’re buying it at $5 a gram and you’re selling it for $20, to say really Mr. retailer, you’re not making a profit? I’ve run the numbers and I can tell you that’s simply not true,” says the grower.

Cannabis City’s McGowan argues her costs are unfairly high as well, and with so many growers trying to get their product on her shelves, she simply can’t pay any more.

“It’s nice to see it flipped a little bit and that we kind of have an upper hand, but at the same time we need to find a middle ground where everyone is going to survive because we do need to get prices cut in half,” she says.

The growers are calling for a change in the system to allow them to open retail outlets as well. They warn if changes aren’t made, a number will be driven out of business.

“I wouldn’t be surprised if we begin to see some really horrible things. Families have put life savings in. Friends of friends have invested their life savings in these things,” the grower says.

“It’s going to be a bloodbath very, very soon,” Gorodnitsky agrees.

Another big complaint concerns the rules limiting where retail outlets can open. Only about 120 have been licensed to date statewide. Gorodnitsky argues by keeping them 1,000 feet as the crow flies from schools and other gathering places, business owners have struggled to find suitable locations, especially in Seattle.

“The shops are not anywhere where people actually go shopping. There’s no shop in Pike Place Market, downtown, Belltown, Capitol Hill. The shop on Capitol Hill is at 23rd and Union, not Pike and Broadway, you know?” says Gorodnitsky.

For now, Gorodnitsky estimates the legal market is capturing less than 10 percent of the total amount of pot consumed.

So what can be done? The legislature is considering a number of measures dealing with everything from changing pot taxes to loosening location rules. They would also bring the unregulated medical marijuana market under state control.

“I think with those changes it has a chance,” says Gorodnitsky. “Without it it’s just going to die out.”