Being a part of the legal marijuana industry is not always profitable. That’s something I have been saying since Washington and Colorado legalized marijuana, and the rush to cash in on the next great American industry started. I was saying it when the growth of the medical marijuana industry started in Western States. A lot of people think that if you open a store or start a garden or invent a marijuana-related product, you will be rich overnight, automatically. That is far from the truth.
The marijuana industry has no guarantees. We are seeing that play out right now in Washington, where one one recently opened recreational marijuana store is going out of business. Stonehenge Cannabis, located in Lyle, Washington, was performing a business practice called ‘bundling’ where someone could purchase marijuana with a marijuana product such as a pipe or lighter. That practice was helping the store get around some harsh 280e provisions in the federal tax code, and was allowing the store to write off some ‘costs of good sold.’ However, that loophole was closed, and combined with the significantly high taxes in Washington for recreational marijuana stores, is just too big of a burden for the store to survive. Per Marijuana Business Daily:
“Before we started bundling in November, we had $5,000 in gross revenue and we wound up with a loss of $1,000 after taxes,” Hallock said. “In January, I think we had a $200 profit.”
Hallock plans to sell whatever inventory she has left in the store, and then close up and re-open in Oregon after that state begins accepting business license applications. She expects to close in another week or two.
Hallock, who is also an attorney, has tried suing the LCB over the bundling prohibition. She has a court hearing scheduled for Friday but doesn’t expect to win.
As an Oregonian, I don’t think the prospects for marijuana stores will be a lot better here compared to Washington. Taxes will be considerably lower, but competition will be significantly higher. Washington capped the number of stores and issued licenses based off of a lottery. Oregon will likely not cap the number of stores, at least not statewide, so the I expect the amount of stores to be very high, and there are only so many dollars to go around. Plus in Oregon people will be able to grow their own marijuana – something that is not allowed in Washington. If you plan on getting into the marijuana industry, whether it’s in Washington, Oregon, or elsewhere, realize that success in the marijuana industry is far from automatic.