Seattle Pot Store Owners Hang On As Weed Prices Fall

It's been a year since the first retail pot shops opened in Washington, and the cost of weed has dropped significantly. But that’s not stopping eager pot entrepreneurs hoping to get in on the budding industry.

When Ian Eisenberg opened Uncle Ike's in Seattle last September, marijuana was selling at about $25 per gram. He said he had no idea what he was doing.

"We really had no expectations because we didn’t know what to expect, we had no experience in the pot business,” Eisenberg says. "We had no experience in retail. I remember the first day we opened, we didn’t even have change in our cash registers for customers."

According to the Washington State Liquor and Cannabis Board, prices were high at first because the supply couldn’t keep up with the initial demand. Over the year, however, production has amped up, which has brought the price down to an average of $11 per gram. Eisenberg said that means he's losing money.

"We’re the classic business school 101 joke, that we lose a little bit with every transaction and we’re trying to make it up in volume," he said.

The initial high price of weed wasn't just due to supply and demand. The excitement of legal pot may have also pushed up prices in the beginning.

"Being able to do something legally that you could previously only do illegally or with certain restrictions, I think is probably what generated the market to begin with," said Tracey Seslen, an economics lecturer at the University of Washington's Foster School of Business. "And now that the novelty has worn off a bit, we’re not seeing the same high prices as on the first day."

Newcomers aren't intimidated by the falling product value, however. New shops have been opening every month since the state first issued licenses for recreational pot stores.

"The fact that prices are falling, and people are still entering the business – it’s confusing to me," Seslen said. "Standard theories of economics would only suggest entry into an industry when people see that it’s profitable."

Donnie Douglas is one of those newcomers; he recently opened American Mary in Wallingford. He said the cost per gram isn't really an issue. He said it’s all about having a competitive edge. His store is one of 16 shops currently open in Seattle.

"As long as the licenses stay somewhat scarce, then I think we’re fairly protected," Douglas said.

Pot shop owners are also grappling with Washington’s changing tax laws. For the past year, marijuana has been taxed 25 percent every time it changed hands – from the producer to the retailer to the customer.

In July, the state taxes increased to 37 percent, but now marijuana is only taxed when it's sold to the customer. Federal taxes introduce another hurdle as pot shops aren't yet allowed to deduct expenses such as payroll and electricity. Eisenberg of Uncle Ike's said that really cuts into his profit, estimating that he makes only 10 percent off each sale.

"I think everyone in this business is just posturing their business until the federal rules change, then we might be able to make some money. But right now, everybody I know is just struggling to hang on," Eisenberg said.

The state is now also in the process of merging the medical dispensaries with retail stores, which means more shops and more supply.

According to the Liquor and Cannabis Board, when Colorado did the same thing, about 50 percent of the businesses there failed. They say that’s likely to happen here, too.