The Cannabis Conundrum

By Jeremy Kaufman August 17, 2011

As the national debate to legalize medical cannabis continues, in Washington State the issues of proper, consistent and clear laws on taxation, regulation and production standards remain an on-going concern for those of us in the industry.

This lack of clear guidance means that, as a small business owner, Im always worried whether Im paying my appropriate taxes, or operating at all times within industry-compliance guidelines, or whether or not my partners and suppliers are meeting predictable quality production standards.

From an industry perspective, lack of clear guidance also makes it exceedingly difficult to increase production to a level which would engage economies of scale, and create a system that provides higher quality cannabis-based medicines at a lower price; with products that are guaranteed, safe, and meet Department of Health and Agriculture standards that would apply to any other consumable

Moreover, dispensaries must have standards of operations and guidelines set by the State and the Department of Health on how to operate, just like bars, restaurants, pharmacies — basically any place that serves consumables must have a regulatory body.

Without regulations, literally anyone is free to set up shop. In fact, right now there are still millions of pounds of cannabis produced in homes, basements, garages, and barns across the state that are not being taxed, while even more potential tax revenue is trafficked out of our state by producers in Oregon and California.

While driving and keeping revenue in the state is an outcome wed all like to see, at the same time the lack of clear guidance has had the biggest impact on patients who rely on the industry to provide safe and legal access to alternative medicine and treatment plans.

This is a quality of life issue. Most folks remain uneducated that cannabis-based medicine now comes in many different forms, such as gel caps, caramels, peanut butter cups, cookies, even chocolates, which utilize multiple cannabis strains specifically engineered to fight highly-caustic ailments ranging from chemotherapy, fibromyalgia, sciatica, Crohns Disease, cystic fibrosis, RLS, rheumatoid arthritis, and IBS.

Having recovered from a broken neck, I can assure you that, if folks like me and many others didnt have a access to dispensaries like The C.P.C (the one I co-founded with my business partner Ben Reagan) that provide alternative healthcare options, the outlook is crushingly bleak.

Youre forced to either suffer every minute of every day under a grinding, ever-present state of pain and discomfort, or navigate the modern medicine paradigm of opiates, the addiction it inevitably creates and its monstrous other side effects.

Despite the fact that Seattle (with newly-written regulations passed into city ordinance this past July) remains one of the most progressive, medical cannabis-friendly cities in the Unites States, the legal status for dispensaries in areas surrounding Seattle exists in a continuous gray area, severely hampering patients who cannot be assured that their dispensary will even remain open.

Worse still, the lack of regulation and production standards unnecessarily drives up costs for both patients and dispensaries because, without it, production cannot be ramped up to proper economies-of-scale levels.

Right now patients are being charged on average between $10-$20 dollars per gram for cannabis-based medicines that, if properly priced should retail for $6-$8 per gram.

Growing medical grade cannabis is a costly proposition, oftentimes done indoors where it is much harder to monitor radicals (bugs, mold, etc.), and limited by height which impacts the yield-per-plant.

Factor in building costs (owned or leased), electricity ($300-$500 per plant per growth cycle), water ($100-$300 per cycle), nutrients ($300-$600 per cycle), and labor ($200-$400 per plant, and it costs approximately $1,000/pound to produce a medical quality product.

Because demand far exceeds the supply, the system remains unbalanced with current prices at levels of $3,000/pound.

Taking a close look at The C.P.C will show you that on average our mark-up per pound is 37%, versus the typical retail markup of 50-60% (calculated at $10 per gram retail/448 grams per pound=$4,480 before 5% standard product loss).

Which means if we gross a million dollars we only net $370,000, but the overhead including salaries, rent, supplies, L&I, B&O and all the other typical business expenses is approximately $400,000.

Conversely, if the industry was properly taxed and regulated (which would foster appropriate economies of scale), this product could be produced at $1000 per pound and taxed at 15%. It could then be marked up to retail at a much more affordable $2,600 per pound.

That translates to 30-40% savings for patients, new revenue for the state, and more effective and safer medicine.

Its time to take the necessary steps to standardize and regulate this industry. By this I mean proper taxation and licensing, intelligent and efficient regulation and production standards.

Combined, this can create an instant and perpetual revenue streams for Seattle and for other cities and municipalities in the state of Washington.

A while back Jeremy Kaufman broke his neck in a snowboarding accident. The resulting surgeries and vertebrae fusion created a chronic and degenerative nerve and muscle condition. After an exhausting few years of wheelchairs, heavy prescription drug consumption and its horrific side effects, Jeremy beat the odds and put himself on a mission to help other folks with severe pain management issues. The C.P.C was co-founded by Jeremy and business partner Ben Regan as a means to assist those in our community who are seeking out alternative medicines and treatments under Chapter 69.51A RCW in the state of Washington.

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