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Financial unknowns loom over marijuana industry

Cannabis seedlings owned by Tom Ash, owner of Tropic Grow LLC, Sequim’s first approved recreational marijuana production facility. Ash, a tier 2 producer, said based on estimates from Washington studies, Tropic Grow LLC could generate nearly $250,000 in taxes for the state possibly more each year once in full operation.  - Sequim Gazette file photo by Matthew Nash
Cannabis seedlings owned by Tom Ash, owner of Tropic Grow LLC, Sequim’s first approved recreational marijuana production facility. Ash, a tier 2 producer, said based on estimates from Washington studies, Tropic Grow LLC could generate nearly $250,000 in taxes for the state possibly more each year once in full operation.
— image credit: Sequim Gazette file photo by Matthew Nash

As Washington approaches its tentative July 1 deadline to issue licenses for recreational marijuana retailers, contention remains in Sequim where the plants will grow.

Given the state has allowed individual counties to create their own rules and regulations for recreational cannabis production, processing and retail, the Clallam County Department of Community Development doesn’t “interpret agriculture to include marijuana,” according to a memo from Sheila Roark Miller, community development director.

Now, those interested in producing and/or processing within the county need a zoning conditional use permit with the exception for zones that list industrial, limited or business park as an “allowed land use.”

The requirement of a conditional use permit, Roark Miller said in her memo, provides surrounding neighbors potentially concerned about a cannabis production facility moving in next door both public notice and an opportunity to comment, and it makes it a difficult and expensive endeavor for entrepreneurs to get a foot in the door of the emerging industry.

Getting established

Dave Burns, owner of StarCrisp LLC, who retired in January as a planner for the City of Lacey, with the intent to start a marijuana farm on Hooker Road found a bed and breakfast owner and some of her neighbors opposed to his plan.

Martha Vaughan, owner of Call of the Wild Lodge, said she feels threatened by a marijuana farm coming in.

“It’ll shut me down,” Vaughan says. “It brings a whole new meaning to Sequim.”

She says she won’t stay there alone and doesn’t feel safe for her or her 19-year-old daughter operating next to a pot farm.

Diana Smith, a long-time resident on Hooker Road, has a similar opinion about cannabis and said a marijuana farm coming in wouldn’t be a good thing for the community.

“I think it’s a gateway drug,” Smith said.

Burns, who nearly applied for a marijuana and producer license through Clallam County, pulled his own conditional use permit application 10 days before a Department of Ecology review in May. His reasoning was due to concerns about water rights, opposition by Vaughan and permitting issues with Clallam County.

But, looking to the future, Burns plans to shift his original plan to perhaps better suit the neighborhood. Burns has put up a divider and planted fir trees between the properties and also plans to change his farm’s design to start with a smaller tier 1 operation rather than his original tier 2 operation with up to 45 plants, similarly to a medical marijuana community grow.

“Nothing could be smelled or seen,” Burns said. “Her clients just see two barns.”

Before he resubmits his conditional use permit, Burns said he wants to finish his buildings.

Tom Ash, owner of Tropic Grow LLC, Sequim’s first approved recreational marijuana production facility, said during his conditional use permit hearing, some neighbors and nearby residents shared concerns with the county about alleged decreasing property values and increased criminal activity with his farm coming in. Ash said the claims are unfounded but no nearby businesses filed complaints.

“For a retail store, I could understand the concerns but (cannabis) isn’t in view and it’s completely encased inside a building,” he said. “No one driving by would even know it’s there.”

Burns said his situation is similar.

“What they know is what they’ve been told and that it’s an evil thing,” he said.

“I have done everything I could, to bring it down to a scale people could accept. If I was operating, neighbors wouldn’t even know it unless I told them.”

What about the money?

If approved to operate a farm, Burns would need to follow security guidelines like Ash, such as alarm systems, motion detectors, cameras and more.

So far, Burns said he’s invested nearly $100,000 on the buildings and their needed infrastructure.

However, despite the high cost of business, once a location is found and the individual or company comply with both the extensive state and county permitting processes the economic potential for cannabis production could be staggering.

The pending tier 3 county producing and processing company Canna Organix LLC “ at full production could be generating over a million dollars per year for the state in tax revenue, said Tim Humiston co-owner of the business.

Each time the product changes hands, whether it be from producer to processor to recreational retailer the licensee “must pay to the board a marijuana excise tax of 25 percent of the selling price” on every wholesale sale or retail sale made, according to the Liquor Control Board adopted rules.

Canna Organix, as one notch below the largest facility classification, anticipates hiring up to 20 full-time employees on the payroll at “living wages” within a year of operating, Humiston said.

“But the amount of employees needed to properly run a producing and processing facility really depends on the amount and type of processing,” Humiston said. “Processing can involve many time consuming steps, such as harvesting, manicuring and packaging the product.”

Due to the strict regulations set by the Liquor Control Board, Humiston said he and his partners plan to have two employees to purely hover about, track and record each plant.

In addition to in-house employment opportunities, “a lot of local resources are being tapped” in order to pursue producing and processing cannabis with the county, Humiston said, such as lawyer consultations, marketing contracts and the upcoming construction costs.

Similarly to Canna Organix, yet proportional to the size of operation, Ash, a tier 2 producer, said based on estimates from Washington studies, Tropic Grow LLC could generate nearly $250,000 in taxes for the state possibly more each year once in full operation.

This year, he estimates he’s spent about $200,000 capital outlay on establishing his business.

“Some of that is start up costs, but it won’t be much different from year to year,” he said.

Prior to abandoning his tier 2 producer/processing plans, Burns said he was considering bringing in his family to help with the operation but by himself with a tier 1 operation he initially estimates annual revenues of $150,000 to $250,000.

From a retail perspective, financial numbers may be more difficult to project because unlike producers and processors that have the entire state as a marketplace, retail stores are more dependent on their local marketplace.

David Halpern, owner of Emanon Systems Inc., said he has no idea how much Sequim would generate for a recreational marijuana business.

Halpern is awaiting word on if he is approved for a license from Washington to open a recreational marijuana store in the City of

Sequim. However, the city maintains a moratorium on all sales, production and processing of marijuana and if lifted, it only would allow sales in certain areas.

“I have nothing to base it on,” he said. “I have no idea on the number of people who would come through the door. It depends on how much business but it’s not as easy as selling McDonald’s hamburgers.”

After talking to others planning on opening recreational stores in Seattle, he said they estimate upwards of $200,000 a month in revenue but he doesn’t think Sequim would come close to that.

“But no one knows what it’s going to sell [for],” he said.

Before he opens, Halpern likely will need to pay rent months before he ever opens starting in August.

City councilors have indicated they plan to wait on lifting a moratorium on marijuana sales until the state “egislature meets again in 2015 to discuss sharing marijuana revenues to help with law enforcement costs and combining medical and recreational marijuana sales.

At the soonest, Halpern said he’d open in September after remodeling his business space.

Depending on business he’d hire two to eight employees depending on sales.

“Anytime where you’ve got revenue and a source for jobs you have economic potential,” Roark Miller said.

And “potential” is exactly what it is at this point in the industry’s evolution from the perspective of not only Roark Miller, but County Commissioner Jim McEntire as well.

“It’s (legalization of recreational cannabis) a grand public policy experiment and there’s definitely an economic component,” McEntire said.

Given both the state and county voted predominately in favor of the legalization of recreational cannabis, McEntire does not see the issue as a partisan driven decision.

Yet, McEntire pointed out the potential economic value of cannabis could be pivotal and depend on political topics, like McCleary decision and its impact on the state budget.

 

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