After five years in operation, Main Street Marijuana has achieved a longtime goal: The Uptown Village cannabis shop is now the owner of its own building — or at least, two-thirds of it.
The 1922 building is divided into three suites. In late July, Main Street Marijuana purchased the two suites that together house the shop’s 2,500-square-foot show floor and customer area. The third suite, which houses offices and some product stock, is still rented under a long-term lease with a different landlord.
The show-floor purchase cost $1.4 million, according to Clark County records, and it represents a major milestone for Main Street Marijuana. Co-owner Adam Hamide said it was a difficult but necessary step to pull off.
“It’s a long-term play for the business,” he said.
Logistics of the purchase
Cannabis retail is well-known as a cash-only business due to marijuana’s status as a federal controlled substance, so the idea of a cannabis shop purchasing its own building calls to mind an image of $1.4 million in literal cash changing hands.
The reality isn’t quite so dramatic, Hamide said. Cannabis retailers can’t access credit card services and can’t open accounts at big national banks, but Washington retailers do have access to banking services through a handful of local banks and credit unions, and they can cut checks for property transactions.
The federal prohibition prevents cannabis retailers from obtaining business loans from big banks, Hamide said, so Main Street’s owners had to pay the entire purchase price in one shot.
Main Street Marijuana is the biggest cannabis retailer in Washington by volume, but retail marijuana is still a low-margin business overall, Hamide said, so it took about three years to save up the money.
“Even for us, it was still something of a hardship,” Hamide said.
A price of $1.4 million is pretty steep for the area, Hamide admitted — a much larger two-story building at the other end of the block sold a few years ago for about $1 million, for example — but he said it was fair when calculated based on the rent Main Street was paying for the space.
The $8,000 monthly rent was also above market rate, Hamide said, but that’s not uncommon for pot shops. Part of it is that cannabis stores are seen as riskier business tenants due to their public perception, but Hamide said there’s also a supply-and-demand factor.
State law prohibits cannabis shops within 1,000 feet of schools, playgrounds and other public places. That restriction severely limits the number of available rental spots, Hamide said. Main Street Marijuana, for example, sits in a narrow strip between the edges of two no-go zones that rule out most of the rest of Uptown Village.
The scarcity creates competition among marijuana shops over the few viable sites, he said, driving up the lease rates.
Tax incentives
“I think ultimately that’s a lot of businesses’ dream: to own the building they operate out of,” Hamide said.
That’s part of the reason why it was worth it to pay so much for the building. But there’s an extra incentive for marijuana retailers: tax deductions. Ordinarily, businesses are able to reduce their taxable income by deducting many of their operating costs, including the cost of rent.
Marijuana shops can’t do that, due to section 280E of the United States Code. The rule is short and straightforward: It states that no tax deductions or credits will be paid to any business that traffics in controlled substances prohibited by federal or state law.
According to a 2014 memo from the office of the Internal Revenue Service counsel, the 1982 rule was intended to reverse a court case from the previous year in which a marijuana, methamphetamine and cocaine dealer from Minnesota successfully argued that he ought to be allowed to deduct part of his apartment rent as a business expense.
The state-legal cannabis industry is obviously a far cry from the situation that originally prompted 280E, but the federal government still lists marijuana as a Schedule I drug under the Controlled Substances Act, so the IRS applies the 280E rule to cannabis shops.
“With 280-E, it makes more sense for us to own our building than any other (business),” Hamide said.
In addition to multiple bills that would legalize marijuana altogether, there have been efforts in Congress in recent years to ease some of the restrictions on the retail cannabis industry.
Rep. Earl Blumenauer, D-Ore., introduced a bill in 2015 that would have amended 280E to create an exception for state-legal marijuana retailers, although it never made it out of committee.
Rep. Ed Perlmutter, D-Colo., has introduced several bills in successive years aimed at making it easier for marijuana retailers to access banking and other financial services. The latest version, known as the SAFE Banking Act, was introduced in March, and Sen. Jeff Merkley, D-Ore., introduced a companion bill in the Senate.
The house bill is on the calendar for a floor vote, and the senate bill is being evaluated by the committee on Banking Housing and Urban Affairs.
Future
The decision to buy a building isn’t undertaken lightly, and Hamide said he and his fellow owners were initially apprehensive about the long-term future of Main Street Marijuana at the site.
Business has remained strong throughout its five-year run, and an early critical problem has been resolved: The business has gradually been able to secure more of the parking lot behind the building.
The store originally only rented one suite in the building and had access to just three parking spaces, Hamide said. But it gained more spaces as it expanded into the other suites, and it was able to rent a few more, bringing the total to 10, which seems to be enough to meet the demand.
Now that they own the building, Hamide said Main Street Marijuana’s owners are able to take a longer-term approach to the site. They plan to invest in a number of upgrades, starting with a new sprinkler system.
“We kind of decided that it was a long term home for us,” he said.
