When you play the lottery, you’re generally in it for the money.
But if you’re one of the 2,000-plus potential pot business owners who jumped into the recent retail lottery for Washington state, you’re in it for the business opportunity as well.
“The potential for profitability is incredible,” said Bert Trobman, an Olympia CPA business owner who, with partners, applied for pot retail licenses at sites in Olympia, Tumwater and Yelm. “In a year, you could be making more than $1 million, with a margin after taxes that could be as high as 50 percent.”
Trobman estimates that, once up and running, such stores could see 200 to 400 customers per day, based on Colorado sales and current client rates at medical marijuana dispensaries. With recreational prices running at roughly $10 per gram, he said the math more than pencils out.
“When we get the final retail site list from the Washington State Liquor Control Board in the next few days, it’s about a 60-day turnaround for those owners to get the sites up and running with inventory,” he said. “Some will take slightly longer, but let’s just say that four months from now there will be huge amounts of revenue coming into this state.”
Vying for the 334 retail spots designated for the state were some 2,200-plus applicants, 23 in south King County, 21 in Pierce, and 11 for Thurston. Mason County will get six stores, and Lewis County adds five, creating 66 new pot businesses around the South Sound if all continues as planned.
“Presently, we’re prescreening applicants based on their industry acumen, location and proven letter of intent to set up a site, so that we can ‘weed out’ those who might try to game the system or who just aren’t qualified,” said Liquor Control Board spokesman Mikhail Carpenter.
Of the original final retail list approval date of early this year, he explained, “It’s been a delayed process, but we’ll be ready any day now.”
Commercial property owners have lately been in a particularly coveted position, Carpenter added, as the best potential pot sales sites often received more than one bidder. If a company with a letter of intent for that site is chosen for retail, landlords have the freedom to pick and choose winners. Likely, he said, those owners will lean toward applicants with a solid business strategy and the ability to pay top dollar to open a store.
“There’s nothing that prevents landlords from taking applicants from multiple people, as they will decide who finally gets the site,” he said.
The link between the three layers of the burgeoning retail marijuana industry— plant growers, product processors and packagers, and the store sites themselves — is already two-thirds’ developed. Last year, the first crop of growers received approval to operate single sites and are now in the midst of nurturing plants. Processors, who are also responsible for labeling and packaging everything from the raw weed to edibles, are also in the midst of setting up operations. When the list of retailers is released, Carpenter estimates that it will be 60 to 120 days before actual walk-in sales will begin.
Jonathan Swartz, an Olympia attorney who with partners now has one 5,000-square-foot building and another 10.2-acre for pot growing and processing in south Thurston County, said that the timing for cultivation and retail distribution indeed lines up with sometime this summer. From his side of the industry, though, the process has been just as fraught with thorns as the retail end as well.
“How do you grow something that was the same price as gold in the ‘90s?” he said. “The difficulty is that every day it’s the first time you face something else, and everyone is figuring it out as they go.”
Before their applications for sites, Swartz and his partners changed their business plan seven times. Just weeks ago, they were one of the first in Thurston County to receive grower and processor license approval.
One of the biggest hurdles he’s encountered, though, is simply the acceptance that marijuana can be produced and sold legally.
“Just today outside of court I was talking about what I’m doing, and I said quite loudly, ‘I’m a lawyer and I’m going to be growing pot,’ ” he recounted. “Everyone is still very conservative because it feels like something that’s still taboo.”
Much more than the plants, labeling and packaging, and retail sites are needed to fulfill the needs of this burgeoning industry, however. This includes incendiary merchandise, security equipment and stock tracking services.
Marrell Brown, developer of the “Cannatrackr” retail pot inventory website, for one, is setting up his online service to monitor inventory for stores, as well as their suppliers and customers. Cannatracker is geared to keep tabs on everything from the amounts of marijuana coming and going through retail sites to the availability of specific strains, as well as educational materials about pot and the industry.
“We’re working closely with local collectives to get websites up, but everyone is a little hesitant because they want to stay legal and maintain their license,” he explained. “The focus is on staying within the basic boundaries because different things are changing every day. No one has a foothold in any area.”
When it comes to potential markets for incendiary products and services surrounding pot, Brown agreed that the industry is open for everything from edibles and specialty bakeries to catering events and tours.
“As the secondary (retail) market for cannabis grows, anything spinning off from that will also expand,” he said.
For that retail market and offshoot niches, though, a few sticking points still exist. Sales are walk-in only, for example; customers can’t yet order online or by mail.
And the point of most contention is that, because banks so far refuse to connect with the industry, transactions are in cash only. Retailers are unable to even take credit or debit cards via Square or similar cell phone attachments or apps.
To get around this, many current medical marijuana dispensaries and retailer applicants are partnering with ATM services to place machines in their stores. The following scenario, though, is that brick-and-mortar pot operators have to haul that cash to the bank to deposit, presenting a security risk for the street site and those in transit. There’s also the income reporting problem for the financial institutions themselves if a pot retailer needs to bank $10,000 in cash or more.
So far, the band-aid for the situation in Colorado has been for the Department of Revenue to open a new cash-only office. In Washington state, this challenge is still to be resolved.
Further down the line, however, a larger situation also looms large. It’s something seen by those on every end of the business: With literally tons of new money coming into the state thanks to retail marijuana, where is the control?
“There are hundreds of millions of dollars that could be generated for the state, yet there’s no control over it at this point,” emphasized Trobman. “The federal government could take the whole thing down unless there is a system for monitoring and control that is in compliance in their eyes. Otherwise, it could be the demise of the industry; that volume of money is all at risk.”
Ultimately, though, what the upstart of retail pot sales could mean is the end of medical pot dispensaries. As consumers turn from an unregulated industry to a retail network with clear labels backed by the state, those sites may slowly dry up. As it is, roughly 50 percent of the original number of Washington state dispensaries have closed already.
“I can certainly see some credence to the theory that when people have the opportunity to purchase something of a known (and labeled) quality they will do so,” said Carpenter.
Still, one the final retail list is released, he said that his department is positive about the economic impact that retail marijuana sales will have on the state.
“Whatever happens in the balance of this issue, while we might see some supply chain challenges in the beginning as things will shake themselves out, the product on all sides will eventually scale up to meet demand,” he said.