Silicon Cities
Seattle’s Ganjapreneurs: City’s Startups Seeing Green After Pot Legalization
Takara Small | May 19, 2016

1412111_FE_silicon_cities_logo-1-e1424446740378

Legalized pot is creating a new class of entrepreneurs in the city of Seattle after Washington voted to legalize marijuana in 2012, paving the way for licensed retailers to start selling small amounts of recreational pot to adults 21 years of age or older in 2014.

“Public opinion is changing, so you’re seeing more conventional businesses and entrepreneurs enter the market and bring with them a higher level of standards and increased competition,” entrepreneur Jeremy Bamford says.

The small business owner is the founder of PotGuide.com—a free online resource that he describes as a “TripAdvisor for marijuana.” His site, which sells advertising space to local marijuana businesses and provides news about regulations across the country, was designed to fill the “knowledge gap” he saw emerge post-legalization.

While there’s an ongoing debate over marijuana legalization and its potential implications for the country, there’s no disputing that the recent wave of legalization across the nation has created new (and in many cases lucrative) business opportunities for some entrepreneurs. A recent report suggests that between 21,000 and 33,000 U.S. companies now derive some or all of their revenue from the cannabis industry.

“Some people have misconceptions about the marijuana industry and the people who work in it,” Bamford says. “Sometimes people will ask me, ‘Are you high all day?’ I say ‘if you worked in a brewery would you drink all day?’ This is just like any other business—you have to work hard to generate a good return.”

Bamford launched his business after graduating from CanopyBoulder, a startup accelerator that helps entrepreneurs launch pot-related businesses. In the last two years, his startup has grown from one employee in 2014 to three full-time and four part-time staff members in 2016—with plans to bring on more hires later this year, he says.

It’s not only marijuana retailers that are benefiting from the new law, either.

“I know of ancillary businesses that specialize in small business insurance, high-quality lighting [high-wattage bulbs are needed to grow plants], and transportation services that shuttle customers around the city that are seeing more business since legalization” he says. “It’s not always easy to measure, but there are businesses profiting from legalization in less obvious ways.”

Meanwhile, local governments are seeing a windfall, too.

In the fiscal year that began July 1, 2015 and ends June 30, 2016, Washington State expects to collect approximately $62 million in marijuana excise taxes. It will also rake in $10 million in state sales taxes, $1.3 million in state Business and Occupation taxes, and $3.6 million in local sales taxes, according to a recent report by the Tax Foundation, a non-profit based in Washington.

Under state laws, local governments receive a portion of the sales tax on marijuana products sold in their area and a slice of the $6 million the state sets aside from its overall marijuana revenues (the exact amount each local government receives depends on its population). For Seattle, that means it receives a total of $383,167.83 for the 2016 fiscal year.

Seattle City Attorney Pete Holmes says the city is committed to working with the state to figure out how to help keep the local industry growing and ensure than Seattle’s small pot businesses can thrive in this new environment.

“We’re building this from the ground up and addressing regulatory problems as they crop up, and we’re committed to making it work,” he said.

James Lathrop—CEO of Cannabis City, one of Seattle’s first marijuana retail stores that opened in 2014—believes one way the city and state need to help small businesses owners is by lowering the heavy tax burden inflicted on retailers. He says the 37 percent excise tax applied on retail marijuana sales is hurting store owners, and preventing the city from maximizing its revenue potential. It’s businesses like his, he says, that are suffering under the current tax rules.

Making matters even more difficult, he says, is that federal laws still classify marijuana as a controlled substance, which prevents startups and processors like his from fully deducting certain business expenses, such as payroll and rent, come tax season.

“Taxation is the biggest problem,” Lathrop says. “We all benefit if we can lower taxes so shops don’t end up going out of business and the city gets more money.”