Jacob Redmond
Well-Known Member
Despite booming retail sales of marijuana at the four retailers in the Yakima Valley, the establishments' owners say governments are cutting deeply into their bottom lines and affecting their profitability.
The four businesses have combined for more than $4 million in sales since the first stores opened in July, but state excise taxes took more than $1 million of those receipts, according to state Liquor Control Board data.
The 25 percent state excise tax is just one factor, though. Marijuana businesses also had to pay federal taxes on their 2014 sales, and the exact percentage that the Internal Revenue Service is gunning for remains unclear because attorneys' interpretations vary.
The lack of clarity stems from an old tax law aimed at preventing drug cartels from laundering money. The IRS has not stated whether that law, which punishes dealers of narcotics including marijuana, applies to businesses that are legal under state law, said Hilary Bricken, a Seattle attorney for the Canna Law Group who specializes in representing marijuana businesses.
"The thing with the IRS is if they issue some memo, it might chip away at prohibition," Bricken said. "The IRS doesn't want to come close to saying something that can be taken out of context."
The costs of starting a business, coupled with the tax burden, have also challenged marijuana retailers.
Adam Markus, the owner of Station 420 in Union Gap, said he hasn't posted a profit in 10 months in business.
"I've had to take out a lot of loans to keep us going, and we have yet to have one month where we have broken even," Markus said.
That's despite a steady increase in business since January, when the store posted $89,861 in sales. Last month, sales reached $144,640.
At Altitude in Prosser, which has the highest sales volume of the four Valley retailers, owner Tim Thompson estimates that 77 cents of every dollar of sales has either gone to the government or been spent on regulatory compliance. He said the business has been profitable, in part thanks to its central location between the Lower Valley cities and the Tri-Cities, where there are no competitors.
Of the four stores in the area, more than half the sales dollars have come from Altitude. From July through the first week of May, the store had more than $2.2 million in sales.
"Not having as many competitors does help our bottom line, but this is a business like any other," Thompson said. "You're going to see people that have done things right and some who see things aren't that easy, and businesses will fail."
Federal law doesn't allow the state marijuana excise tax to be deducted from income, which adds to the business tax burden. That would change if the state tax is reclassified to not be considered an excise tax.
Legislation in Olympia aims to do that.
House Bill 2136 would relieve businesses of having to count the income they lose to the state in their federal tax filings, but it would increase the state tax from 25 percent to 30 percent. The bill passed in the House and is awaiting action in the Senate.
Ken Weaver, owner of The Slow Burn in Union Gap, said that if the bill passes, retailers would ultimately pay less despite the higher tax rate.
"Basically, this legislation would cut the federal government out of the windfall they're currently enjoying," Weaver said.
Weaver said his business opened in December and lost money because of operating expenditures, but it still had to pay $6,700 in federal income taxes. That's because the tax quirk made his business appear profitable to the IRS when in fact it was not, he said.
Local marijuana retail owners interviewed said sales have benefited from a steep drop in prices since last summer, when a gram of marijuana might have sold for $30 to $50 depending on potency. Now, some stores offer prices as low as $5 to $10 a gram, which owners say is still higher than black-market value but significantly closer.
"Sales are now very comparable to what street prices are," Markus said.
The price drop started in the fall after outdoor growers began harvesting and flooded the market, three retailers said.
Liquor Control Board spokesman Mikhail Carpenter said that to date, only two marijuana businesses in the state have closed, one on Bainbridge Island and one in Sumas.
Carpenter said the closures reportedly had more to do with local zoning issues and public opposition than poor sales.
Whether most business owners will succeed and stay in the industry over the long term remains to be seen, Bricken said.
While few of the businesses have failed in the conventional sense, she has seen clients give up their businesses and sell to others hoping to make a splash in the industry.
That's because of the uncertainty about business regulation at the state level as well as the federal level, where there appears to be no likelihood that marijuana will be legalized or downgraded from its current Schedule I status, meaning that it has no currently accepted medical use and a high potential for abuse.
"We still think we'll see even more owners eventually getting out of the business," Bricken said.
News Moderator: Jacob Redmond 420 MAGAZINE ®
Full Article: Yakima Herald Republic | Pot not full of gold for Yakima Valley marijuana retailers
Author: Mike Faulk
Contact: mfaulk@yakimaherald.com
Photo Credit: Mason Trinca/Yakima Herald-Republic
Website: Yakima Herald Republic | Home
The four businesses have combined for more than $4 million in sales since the first stores opened in July, but state excise taxes took more than $1 million of those receipts, according to state Liquor Control Board data.
The 25 percent state excise tax is just one factor, though. Marijuana businesses also had to pay federal taxes on their 2014 sales, and the exact percentage that the Internal Revenue Service is gunning for remains unclear because attorneys' interpretations vary.
The lack of clarity stems from an old tax law aimed at preventing drug cartels from laundering money. The IRS has not stated whether that law, which punishes dealers of narcotics including marijuana, applies to businesses that are legal under state law, said Hilary Bricken, a Seattle attorney for the Canna Law Group who specializes in representing marijuana businesses.
"The thing with the IRS is if they issue some memo, it might chip away at prohibition," Bricken said. "The IRS doesn't want to come close to saying something that can be taken out of context."
The costs of starting a business, coupled with the tax burden, have also challenged marijuana retailers.
Adam Markus, the owner of Station 420 in Union Gap, said he hasn't posted a profit in 10 months in business.
"I've had to take out a lot of loans to keep us going, and we have yet to have one month where we have broken even," Markus said.
That's despite a steady increase in business since January, when the store posted $89,861 in sales. Last month, sales reached $144,640.
At Altitude in Prosser, which has the highest sales volume of the four Valley retailers, owner Tim Thompson estimates that 77 cents of every dollar of sales has either gone to the government or been spent on regulatory compliance. He said the business has been profitable, in part thanks to its central location between the Lower Valley cities and the Tri-Cities, where there are no competitors.
Of the four stores in the area, more than half the sales dollars have come from Altitude. From July through the first week of May, the store had more than $2.2 million in sales.
"Not having as many competitors does help our bottom line, but this is a business like any other," Thompson said. "You're going to see people that have done things right and some who see things aren't that easy, and businesses will fail."
Federal law doesn't allow the state marijuana excise tax to be deducted from income, which adds to the business tax burden. That would change if the state tax is reclassified to not be considered an excise tax.
Legislation in Olympia aims to do that.
House Bill 2136 would relieve businesses of having to count the income they lose to the state in their federal tax filings, but it would increase the state tax from 25 percent to 30 percent. The bill passed in the House and is awaiting action in the Senate.
Ken Weaver, owner of The Slow Burn in Union Gap, said that if the bill passes, retailers would ultimately pay less despite the higher tax rate.
"Basically, this legislation would cut the federal government out of the windfall they're currently enjoying," Weaver said.
Weaver said his business opened in December and lost money because of operating expenditures, but it still had to pay $6,700 in federal income taxes. That's because the tax quirk made his business appear profitable to the IRS when in fact it was not, he said.
Local marijuana retail owners interviewed said sales have benefited from a steep drop in prices since last summer, when a gram of marijuana might have sold for $30 to $50 depending on potency. Now, some stores offer prices as low as $5 to $10 a gram, which owners say is still higher than black-market value but significantly closer.
"Sales are now very comparable to what street prices are," Markus said.
The price drop started in the fall after outdoor growers began harvesting and flooded the market, three retailers said.
Liquor Control Board spokesman Mikhail Carpenter said that to date, only two marijuana businesses in the state have closed, one on Bainbridge Island and one in Sumas.
Carpenter said the closures reportedly had more to do with local zoning issues and public opposition than poor sales.
Whether most business owners will succeed and stay in the industry over the long term remains to be seen, Bricken said.
While few of the businesses have failed in the conventional sense, she has seen clients give up their businesses and sell to others hoping to make a splash in the industry.
That's because of the uncertainty about business regulation at the state level as well as the federal level, where there appears to be no likelihood that marijuana will be legalized or downgraded from its current Schedule I status, meaning that it has no currently accepted medical use and a high potential for abuse.
"We still think we'll see even more owners eventually getting out of the business," Bricken said.
News Moderator: Jacob Redmond 420 MAGAZINE ®
Full Article: Yakima Herald Republic | Pot not full of gold for Yakima Valley marijuana retailers
Author: Mike Faulk
Contact: mfaulk@yakimaherald.com
Photo Credit: Mason Trinca/Yakima Herald-Republic
Website: Yakima Herald Republic | Home
