Marijuana is definitely on a roll in the United States. Gone are the hysterical days that brought us Reefer Madness, replaced by studies that show, at worst, the drug is akin to alcohol, which is legal, accepted, regulated, and widely used. Furthermore, scientific research including clinical studies have shown that it offers medical benefits to sufferers of many health conditions.
Using and selling marijuana is legal in 20 states--at least for medicinal use--and Colorado and Washington have decriminalized recreational use and sales. Many, particularly Colorado where recreational pot has been legal for almost a year, see a boon to the economy as people interested in using without hassle move to the state and visit as tourists.
But Colorado is also largely in an experimental phase, as retailers and others grapple with the consequences of the drug’s wider illegality in the country. It can be hard to be the trailblazer, but, to be blunt, it can be valuable for other governments, citizens, and would-be retailers to watch and learn.
Banks don’t want a puff
By far the most problematic wrinkle for marijuana retailers’ business is that banks haven’t wanted to hold their proceeds. The Obama administration has recently stepped in to help by issuing clarifying policies through the Justice and Treasury departments that lessen banks’ liability if they deal with sellers in states where pot is legal. Government agencies, especially law enforcement, have their own reasons for this intervention: It is a problem if retailers have to hold onto large amounts of cash, which can attract crime. Indeed, marijuana retailers have been forced to hide money caches and hire security firms to protect them.
But the problem remains. While clarifications from federal agencies are somewhat helpful, there is no promise of immunity for banks in any of those policies. Even those rules state that any bank doing business with a marijuana retailer must be able to show that the pot doesn’t go to children, isn’t trafficked to another state, isn’t used on federal property, and has no dealings with organized crime, among other stipulations. That’s much more than most banks want to handle, given that many of these conditions depend on variables outside of their control.
Banks that do agree to do business with legal pot dealers, therefore, have adopted a “don’t ask, don’t tell” approach, but it’s a precarious situation for both banks and their marijuana retail customers. Retailers in particular face not just real dangers from criminals after their money stash, but also are often stymied in their search for investment funds.
E-commerce not happening
If there is one area where retail is solidly brick-and-mortar, it’s in pot. The best opportunity for online sales are of seeds. Websites can get as fancy as a retailer wants, but unless they deal exclusively with t-shirts sales, or possibly paraphernalia (ostensibly for tobacco use, but technically illegal in many cases), marijuana e-commerce is still illegal or, at best, problematic.
With a new retail sector, a new bureaucracy
Any company knows that there’s plenty of paperwork when establishing a brick-and-mortar retail presence, and marijuana is no different.
In Colorado, there are now whole new services around educating anyone interested in retail marijuana sales, offering consulting on regulations, branding, and — literally — growing the business.
Taxes hurt the bottom line
One might think that a benefit to being a cash-based enterprise would be an escape from taxes. But once a retailer is sanctioned by the government, it’s also taxed by the government. Colorado charges stores a 2.9% sales tax, another 10% state tax on retail marijuana sales, and a 15% excise tax on the average market rate of wholesale marijuana. The state expects to reap $67 million annually from these levies.
Municipalities are benefiting, too, by taking in some of those state taxes and by levying some of their own. And while taxes are collected, expenses are less likely to be allowed as deductions to offset businesses’ outlays.
Other states mulling the legalization of pot are also planning their tax policies as well. But this is making weed in those states far more expensive for consumers, who may ultimately decide that black-market goods are more attractive at nearly half the price (especially in light of more lax possession laws).
Marijuana in the mall
As retailers move from medical dispensaries to recreational ones, they do have more choices of location in some areas. In Colorado, weed retailers have found little resistance from business organizations or the public when contemplating moves into area malls. So far, cities are taking an open-minded approach, probably because the law is bringing in users and tourists — and their dollars. But they tend to take a low-profile approach to avoid much scrutiny.
Despite the euphoria many Americans feel about the legalization, or at least the easing up of criminalization, of selling and possessing marijuana, the retail side remains fraught with uncertainty. That's true now and for the foreseeable future. While the momentum seems decidedly in the direction of further expansion within the market, it is left to those who have the stomach for heavy regulation and lingering doubts in the public's mind to show how it can be done profitably and safely. For now, Colorado, Washington, and the 18 states that have sanctioned medical dispensaries serve as test cases that will continue to offer up lessons for anyone else who thinks they may want to just say yes.
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