Employees of North Bonneville’s Cannabis Corner gather for a pre-opening team meeting.
By Garrett Rudolph
With marijuana increasingly being legalized for recreational use, an ever-evolving list of momentous events are being etched into cannabis history.
The first states to legalize marijuana. The first retail sales. The first licensed producer. The first licensed edible manufacturer. The Pacific Northwest recently witnessed another big first in the cannabis industry — the first municipally-owned marijuana retail store opened its doors to the public March 8.
Located along the southern border of Washington State, The Cannabis Corner is operated by the North Bonneville Public Development Authority, a municipal corporation that was set up specifically to manage the retail operation.
Profits from the store do not feed directly into the city’s general fund, but the store’s revenue can be used to fund city projects in the form of grants. It could be a much-needed source of revenue for a town that has less than 1,000 residents, no retail sector to speak of and has been teetering on the edge of bankruptcy for years.
Consultant John Spencer, who orchestrated the business model for The Cannabis Corner, described the city of North Bonneville as being “so destitute that we have resorted to selling drugs to stay alive.”
The conversation began in the fall of 2013, nearly a year after the passage of Initiative 502, and officially came to fruition on March 7, 2015, when Mayor Don Stevens made the first legal purchase of marijuana in Skamania County history — four grams of various dried flowers for $60.
Opposition
Not everybody is going to be thrilled about the opening of The Cannabis Corner.
There’s a definite question about the reach of government authority, and whether or not a municipality should insert itself into private enterprise.
The PDA designation also gives The Cannabis Corner an advantage that no other marijuana retailer in the state can match — exemption from federal income tax. The potentially devastating effects of IRC 280E — a massive concern for nearly everybody in the cannabis industry — have no impact on The Cannabis Corner.
“It’s not a level playing field — and I love it,” Spencer acknowledged.
Because of a significantly lower tax obligation, The Cannabis Corner can sell products at a lower price, while maintaining higher margins than other stores, Spencer said.
The advantages also extend to the store’s four full-time and seven part-time employees, who are eligible for “platinum level” health care benefits, Washington’s public employees retirement system (PERS) and other government employee benefits, PDA board president Tim Dudley said.
Dudley said the concept was to hire top-notch employees and avoid turnover by offering decent wages and excellent benefit packages.
Employees of the store work for the PDA, not the city.
Each employee did have to pass a pre-employment drug screening, although a positive test for cannabis would not have disqualified them from employment Spencer said.
“I was quite upset, actually, when the store manager came up totally clear on marijuana,” he added.
Hiring Robyn Legun as the store manager was a key piece of the store’s infrastructure, Spencer said.
“It was vitally important that we hired a good store manager who knew both retail and marijuana.”
Legun has quite a bit of authority to run the store as needed and make most purchases without needing to get approval from the PDA board, Dudley said.
“We tried to find somebody who had a good retail background, and knew something about the product as well,” he said. “We were really looking for somebody had a stronger retail background than somebody who had pot knowledge.”
The North Bonneville PDA was one of three lottery winners in Skamania County, but it appears the other two applicants have stopped pursuing their licenses, at least for now, Spencer said.
However, the North Bonneville PDA nearly missed its opportunity to open a store.
Originally, the Washington State Liquor Control Board slotted two retail stores for Skamania County.
When the lottery was held, the PDA’s application was initially ruled ineligible. Further investigation revealed that ruling to be incorrect, and the county’s allotment was increased to three retail stores.
Bucking the small-town trend
Ultimately, the story of The Cannabis Corner is one of creativity, adaptation and innovation, more than anything else. At a time when most small towns took a small-minded approach to change, North Bonneville embraced the opportunity.
After Washington voters approved I-502, cities and counties all across the state tackled the question of how they would respond. Many imposed outright bans. Others implemented moratoriums to buy more time.
Bolstered by local voters’ support of I-502 at nearly 54% (and similar support county-wide), the North Bonneville City Council took a vastly different approach. During a fall 2013 meeting, council member Charles Pace suggested the city open its own retail store.
The initial reaction was one of silence, as those in attendance pondered the possibility.
“We were taken by surprise because nobody else had considered it,” Stevens said. “But it made sense right from the start.”
By operating its own marijuana retail store, the city could maintain more control than if it were owned privately — another premise that is sure to make small-government proponents cringe.
“We could sit back and hope for the best or grab the bull by the horns and control our destiny to a certain extent,” Stevens said. “That’s what we’ve been able to do.”
Stevens has been a vocal supporter of the industry.
He’s embraced the concept so much that in addition to being the store’s first paying customer, he’s ordered custom license plates that read MJ MAYOR.
As soon as the thought of a city-owned retail store came about, the majority of the five-person council saw the positives outweighing the negatives, Stevens said.
Eventually, that brought Spencer — who had left his position as North Bonneville city administer several months earlier — back into the fold.
The future
After leaving his position with the city, Spencer and his sister had launched Pulse Consulting, which primarily dealt with the health care industry, initially.
Spencer’s background included 15 years of working in government, primarily in the finance sector. The recent years he’d spent trying to keep North Bonneville afloat financially were exhausting, but the opening of The Cannabis Corner presented a unique opportunity.
Spencer was tasked with establishing the PDA and setting up the business plans. He penciled out financial projections that the store could effectively raise the city’s revenue by 20-70%.
“In my worst nightmares, this PDA will earn $150,000,” during its first year of operation, Spencer said. That’s a significant source of income for a town that has an annual operating budget of about $600,000.
“There’s definitely that excitement that if this works, it could save the city,” Spencer said.
Spencer said he generated his pro forma based on the basic assumption that the store would draw customers only from Skamania County residents and traffic along Highway 14. It’s currently the only marijuana retail store for about a 70-mile stretch between the handful of shops in Vancouver and Margie’s Pot Shop in Bingen.
Spencer’s numbers indicate the store will be successful. But the city has put a lot of faith in him. It didn’t seek out another independent analysis of the revenue projections.
Dudley, an accountant by trade, said he tends be conservative by nature, but feels confident about the financial projections.
“We’re pretty confident that we will more than exceed the numbers we have set,” Dudley said.
During the store’s first week of operation, sales averaged about $2,200 a day — well below initial projections — according to a story in The Washington Post.
Although Spencer remains optimistic, he said his professional training leads him to be “terrified.”
“Remembering that I’m a finance guy, my role is to continually scream doom and gloom so the elected officials won’t try to spend more money than they have,” he said.
Spending money it doesn’t have is exactly what the city did to open The Cannabis Corner. The city provided a $15,000 loan for the start-up expenses, then borrowed about $235,000 from private, non-equity investors.
The financial structure of the PDA initially created a challenge for the Washington State Liquor Control Board, which had to do background checks on all five board members, all five financiers and all their spouses.
The PDA used some of the loan money to immediately pay back the start-up loan from the city. Now, its focus is to pay off as much of the outstanding debt as fast as humanly possible Spencer said.
Once the initial loan from the city was paid off, most of the PDA’s detractors disappeared, Stevens said.
Spencer points out that his one great fear regarding the success of the store is the future of the Oregon market.
“We may well be a success, but if a store opens up across the river five minutes away and their tax burden is one-quarter what ours is, we’re dead,” Spencer said. “We may well survive, but we’ll be surviving off just the local people.”
As of now, Spencer is the only person who has created a business model and launched a municipally-owned and operated marijuana retail store. It’s a model he plans on shopping around to other cities facing financial dire straits.
Shortly after The Cannabis Corner opened, and significantly reduced Spencer’s direct involvement with the PDA, he was making plans to visit Oregon for the Liquor Control Commission’s series of listening sessions.
As for North Bonneville, Stevens hopes to see more state-licensed marijuana businesses set up in town. He’s hoping some producer/processors may join the fray and bring desperately needed jobs to Skamania County. He said half the county’s residents leave the county for work. There is some property that would be perfect for a grow operation, said Stevens. However, it’s owned by the local port authority and federal prohibition makes officials leery of leasing to marijuana businesses.
That’s just one more reason President Obama needs to reschedule cannabis immediately, Stevens said.