Oregon Cannabis Guide 2017
I’ve rhapsodized in the past about two of my favorite cannabis products—in 2015, I penned a column about Drip Ice Cream, and a year later, I spotlighted Luminous Botanicals. I tried both, repeatedly, and loved them, and after talking to the owners of both companies, I loved them even more. Drip and Luminous are shining examples of what Oregon craft cannabis companies can epitomize—new startups with owners wearing many hats, just like any small business. And as Walmart has taught us, we always want to support small businesses. (Man, fuck Walmart.)
Then one day late last year, I walked into my favorite local dispensary [REDACTED], and discovered that the products I loved were gone. I headed down to the next dispensary and—same deal. I asked when they would be restocked, and the budtender replied, “Not sure they will be. I think they both went out of business.”
I was floored. How could that be? Many of my friends and Oregon Medical Marijuana Program (OMMP) cardholder patients were familiar fans of these companies, so I know it wasn’t due to lack of customer interest. There hadn’t been any canna-scandals in terms of either brand or their owners. There had been some rule changes—lots of them, actually—but could have they taken out two flourishing companies? And would these changes have come from state or city?
Having no easy answer as to where the blame rested, and more importantly, having no cannabis-infused ice cream (#chubbystonerproblems), I opted to send a polite inquiry to Drip in my capacity as a member of the press:
“WHY DID YOU LEAVE ME? WHATEVER I DID, I’M SORRY, I NEED YOU, NOW, I NEED YOU IN MY MOUTH! IS IT MONEY? I CAN GIVE YOU MORE MONEY. I MISS YOU SO MUCH.”
Surprisingly, Andi Bixel, CEO of Drip Ice Cream, charitably opted not to block me or report me to the police. Rather, she replied that yes, they “were off the shelves but would be back... soon.”
“Yes, but soon when, exactly?” I cried. “And what do you expect me to do until then, smoke a joint and then, what, eat some Salt and Straw? Who’s ever done that?”
Devan Anthony, co-owner of Luminous Botanicals (along with fellow co-owner Sally Alworth) was equally hopeful but vague. “We aren’t on the shelves, for now,” he patiently explained in response to my frantic missives. “We are working out some... challenges, but we plan to be available in short order.”
This was small comfort to my OMMP patients, many of whom had begun to rely on Luminous’ line of cannabis-infused coconut and almond oils—in three distinct formulations of THC, CBD, or a combination of both—as uniquely effective forms of relief.
But I made do with the hopeful assurances that the products would be returning. And I’m happy to report that recently, both did. But I was still curious as to what had happened.
So I reached out again and asked if they would be willing to share their stories with me. Both agreed—and shortly walked me through the Book of Job-like challenges they had respectively faced. I was taken aback, to say the least.
Drip and Luminous’ stories were surprising to me on many fronts. They included ongoing obstacles from regulatory agencies as the recreational market matured and new rules were introduced. Both companies suffered lengthy delays in getting permits approved, and had to contend with a real-estate market that, as it turns out, isn’t very friendly towards cannabis businesses.
Starting a cannabis business is a dream for many—and Oregon has a plethora of creative entrepreneurs who are not just growing or selling it, but crafting something new and unique using cannabis, be it edible, topical, or what have you. But how viable is that dream in the current business climate of Portland, a city with real-estate prices spiking out of control? And not to sound paranoid, but just how supportive is the city of Portland to small cannabis businesses, really?
I Scream, You Scream, We All Scream “WTF?”
An Interview with Andi Bixel
of Drip Ice Cream
Before the shutdown, when was the last time I could buy your ice cream?
We produced for the last time the last week of September 2016. “Temporary” testing rules came into place on October 1, and we kept being told they would change, so we waited... and waited. We continued paying our production and sales team, thinking the rules would change. It wasn’t until the end of the year that we finally let our staff go—after swallowing three to four months of payroll.
How well were you doing prior to going “on hiatus”?
Before being booted off the market, we were selling ice cream at over 100 dispensaries. We built our team from three women working part-time, to seven almost full-time employees. We were rolling.
How long did you think you would be off the shelves?
Three months... LOL. (Why is there no “cry out loud” acronym?)
And how long were you actually off the shelves?
Eleven months. We are now having to completely re-introduce our product to both dispensaries and the public, a duplicated effort to all the work we put in last year. The most detrimental part of all of this is that we lost our entire team, including one partner who just couldn’t handle the unknown any longer.
How has it been since you’ve been back on the shelves?
Our first sale was on September 1. We are definitely having to build from the ground up again, but we’re very thankful for our dispensary partners and the consumers who are rooting for us and showing support by purchasing our product!
So what happened, exactly?
The reason we were off the market so long was directly related to our production space in Portland. We went through our permitting process with the City of Portland and then after six months (and sooo much money, plus all the work we did with architects, engineers, contractors, and land-use lawyers), we were told by another entity within the city called ONI [the Office of Neighborhood Involvement] that they wouldn’t grant us use of the building. [There was] one piece of paper that they refused to sign. They put us and another dispensary out of business in the same location. We completely screwed over the landlord of the space we haven’t been able to use (oh, that’s my mom, and partner in Drip). She has now lost eight months of rent revenue and is left with an unrented building, in mid-construction. As a retired woman, that was her only source of income.
Fast forward to months later and we are now working out of a facility in Eugene. We are still fighting to get use of our original building, but had to put a pause on the spending there. I would have loved to stay in Portland and Multnomah County, but there were still no kitchens available for rent to a cannabis business that we could find.
If we would have been told things straightforwardly from the get-go, we wouldn’t have wasted so much time and energy. It continues to blow my mind that this kind of thing could happen, especially in a place that claims to be friendly to small business.
In total we lost about $75,000 to $100,000 in this process and are still having to spend.
Clearly, we fought. Maybe I’m crazy, but something in me knows that Drip has to exist in this world.
It Relieves Pain Everywhere But The Wallet
An Interview with Devan Anthony and Sally Alworth of Luminous Botanicals
When was the last time I could buy your products?
We delivered products to a few shops at the end of December 2016, and most of those shops were sold out within two weeks. Sweet Relief in Scappoose continued to buy small amounts through the end of February, but most Portland residents weren’t willing to go that far. So you could find our oils in Portland for the first week or so of October, then again for a week or two in January, and then not until the first week of June.
Was it going well?
Just before our sales crashed in July, we had finally reached the point where we were generating a profit each month, even though we were only selling on the medical market (our products weren’t included in the early sales program). That was just what we had predicted in our business plan. More importantly, we were hearing each week from Oregon Medical Marijuana Program [OMMP] patients who were finding genuine relief using our medicines.
How long did you think you would be off the shelves?
We were hoping for no longer than three months.
And how long were you actually off the shelves?
For pretty much all of eight months.
What were the subsequent results for you? How long have you been back on the shelves?
We definitely lost brand awareness while we were off the market, and we’re working hard to rebuild our reputation. To get through the long down-time, we both ended up refinancing our houses so that we could put money into the business. It’s hard to quantify the emotional cost—we spent most of eight months not knowing if we would ever get back on the market. We were working crazy hours, putting every penny we could into the company, and every day carrying the weight of knowing we might lose everything we had spent three years building.
But the most painful part was fielding the calls and emails from medical patients who were depending on our tonics and could no longer find them. Try telling someone with a chronic disease like fibromyalgia or Parkinson’s that the treatment that improves their quality of life is suddenly illegal to produce because of a rules change. It breaks your heart.
We’ve been back on the shelves for three months.
So what do people need to know about your ordeal?
The most important thing to know is that the City of Portland requires a separate marijuana business license, which duplicates the OLCC license almost exactly. The application fee for that license is $750, and then the license fee is an additional $3,500. We have to renew that license each year. The program is unnecessary, provides no value to the industry or to the community, and is absurdly expensive. Our industry is generating good jobs, a 3 percent local retail sales tax, and a significant amount of local corporate income tax. If we were in any other industry, the city would be courting our business, not adding a new layer of bureaucracy that we have to pay for. That licensing program needs to end.
Along with that, we’ve faced some special challenges in this last year that don’t apply to other industries. New City of Portland zoning rules for cannabis businesses forced us to move our production kitchen before we could apply for our OLCC license. Property owners with conventional mortgages can’t rent to cannabis businesses because cannabis is federally illegal. Of the landlords who could rent to us, many were charging what we in the industry think of as the “cannabis tax,” doubling or tripling rents over market rate. We searched for space for over a year before we found our current building.
Once we had a lease, we were required to file for a change of use permit with the Bureau of Development Services (BDS). BDS is difficult and time-consuming to navigate for any small business, and they had no idea how to apply existing building codes to our new industry, with some absurd results, such as:
A furniture shop spraying potentially toxic stains and sealants can operate with less air filtration equipment than we are required to have in our cannabis kitchen.
The Water Department insisted that we install a premises isolation backflow device on our building—normally only required for businesses that either use toxic chemicals or have manufacturing equipment connected directly to the water lines, neither of which applies to us.
The Portland Bureau of Transportation (PBOT) treated our two-person manufacturing business the same as a busy retail dispensary, asking for tens of thousands of dollars of upgrades to the sidewalks and parking. It took three months and $7,500 of legal fees to get through their appeals process.
And then there were all of the state rule changes around labeling, packaging, and laboratory testing, all of which carried a cost. It’s been a hard road.
The Rent Is Too Damn High
(And So Are The Taxes)
If you want to open a cannabis-related business, get ready to pay fees that other comparable businesses don’t have to face. While I’m normally loathe to compare alcohol and cannabis, I’ll make an exception to see how two industries that fuel our city compare on what they have to pay to play.
I asked Larry Clouser, founder/partner of Pono Brewing Company (a small brewery whose logo tells you they’re not exactly a cannabis-hostile company) and Sally Alworth of Luminous Botanicals to compare some costs.
• License Fees
PONO: This can vary depending on what type of license the brewery gets. Brewery licenses and Brewery Public House licenses annually run $500 and $250, respectively, plus an additional $2.60 “server education fee” for on-site consumption sales. As a contract brewery, we have a Wholesale Malt Beverage Wine license at the moment, which is $275 annually. There’s also a Brewery/Brewpub/Alternating Proprietorship or Wholesaler (Alcohol) license, but these are free since they get you on taxes!
LUMINOUS: We had several of these. OLCC Marijuana Processor license: $250 application fee, $4,750 license fee. City of Portland Marijuana Business license: $750 application fee, $3,500 license fee. Department of Agriculture Commercial Kitchen License: varies based on volume of sales per year. Ours cost $480 for this year, plus $39 for each legal-for-trade scale. The Oregon Department of Agriculture will review and adjust that fee each year. This last one is the same as any non-cannabis production kitchen.
PONO: This will vary depending on what type of license you have, but can be anywhere between $100 to $500 a year, typically.
LUMINOUS: None required.
PONO: This will depend on what type of license and the value of the assets, the facility itself, etc. As a contract brewery we only have a bond and then a very large vehicle insurance policy, but there is much more we could add once we grow and have more money available.
LUMINOUS: Comparable to other businesses.
PONO: These are paid both federally and at a state level. It’s $7 per barrel federally and $2.60 per barrel for the state. (A keg is typically a half-barrel.)
LUMINOUS: State and local marijuana taxes are collected as sales taxes at the retail level, so we don’t pay a direct excise tax as a processor. Our business income taxes are unusually high because of IRS code 280E, which penalizes businesses involved in the federally illegal sale of drugs. We pay income tax on our gross sales, less the direct cost of goods sold. A normal business can deduct sales, marketing, and administrative expenses from their taxable income, but we cannot. For 2017, I expect we will have to declare an additional $80,000 in taxable income due to 280E, and at an estimated tax rate of 30 percent, that’s an extra tax bill of $24,000.
• Permitting, Construction, Start-Up Costs, Etc.
PONO: As we are a contract brewery that is soon switching over to alternative proprietorship, we didn’t have the start-up costs that full brick-and-mortar locations had. For those places, their start-up costs are in the thousands of dollars due to all of the permitting, construction costs, equipment, and all the other costs associated with a brewery start-up, which typically should be budgeted around $750,000 to $1,000,000 for a decent-sized brewery.
LUMINOUS: The permitting and renovation costs were higher than we expected due to issues with the Bureau of Development Services, but they were still in line with what other start-ups have to pay.
• Other Fees and Expenses
PONO: We needed a background check from local governing body’s law enforcement. Our license has our home office on file so we had to go through Clackamas County, which charges $100. I have heard that Multnomah County may be a little more.
LUMINOUS: There are packaging review fees, so all containers and product labels must be pre-approved by the OLCC. The fee is $100 for each container type approved and $100 for each label type approved.