Nothing is Certain but Weed and (back) Taxes

Eugene’s crowded marijuana market still faces financial questions

When you walk into one of Eugene or Springfield’s 68 marijuana retailers, you will see shelves full of green. In the back offices, though, their books may be in the red. After reviewing the financial records of Lane County’s 84 retailers from the Oregon secretary of state, Eugene Weekly found that some owe the Oregon Department of Revenue (DOR) up to hundreds of thousands of dollars in back taxes.

Oregon has 571 licensed marijuana retailers, which comes out to one for every 7,385 Oregonians. There’s roughly one for every 4,425 people in Lane County, and retailers are just about as common as cracks in sidewalks. With a market that is becoming increasingly saturated and competitive, the dire financial situation of some retailers shows that the cannabis industry is evolving and moving into the mainstream.

“Obviously in the cannabis industry, just like in any industry, some businesses just don’t make it,” says Paul Loney, a Portland attorney who specializes in cannabis law. “It’s a slippery slope when you fall behind on paying your taxes. It’s hard to catch back up.”

Marijuana retailers can end up with tax debts for a variety of reasons; however, one common reason is failing to pay taxes on retail marijuana sales.

The state levies a 17 percent marijuana tax, and the city of Eugene adds an additional 3 percent tax, in what many call a “sin tax” on a substance some see as harmful. If a customer purchased marijuana with a list price of $10, the total bill would be $12.

Retailers collect the taxes on marijuana from each customer’s purchase and submit them to the DOR at the end of the month. At the end of the quarter, retailers submit a return to the DOR, which ideally should match up the payments made at the end of each month.

Joy Krawczyk, a spokeswoman with the DOR, writes in an email that the department can send the owner a “demand to pay letter” if there is a discrepancy in the retailer’s finances. Krawczyk writes that the sanctions can escalate if the retailer doesn’t respond to the letter.

“If they don’t pay following receipt of that letter, then we file the lien along with other collection activities, such as issuing a garnishment (if there’s an account from which we can garnish).”

Debts don’t just affect the owners of the business; failures to pay off a debt can lead to problems with the Oregon Liquor Control Commission, the agency that regulates the sale of recreational cannabis in the state.

According to Oregon law, after receiving a notice that a retailer is in financial trouble, the OLCC shall “refuse to reissue, renew or extend any license, contract or agreement until the agency receives a certificate issued by the department that the person is in good standing with respect to any returns due and taxes payable to the department as of the date of the certificate.”

Because marijuana remains illegal under federal law, retailers can’t seek protection from creditors by filing for bankruptcy.

“We’re mainstream America, but on the federal level in so many ways we’re still the weirdoes in the corner,” says David Kelly, a former Eugene City Council member and the owner of Mary Jane’s Pot Shop. “It’s this strange dichotomy.”

Kelly had a $26,392.89 lien placed on his business by the DOR, but Kelly says that he was able to work out a payment plan with the DOR and said that the department was “very cooperative.” Kelly adds that the OLCC has been supportive of his business.

“The lien hasn’t affected our relationship with the OLCC at all,” Kelly says. “I won’t speak for OLCC but what I have seen both as a participant and as an observer, is that they have some flexibility in their administrative rules and they’re looking for compliance. They will treat someone who made a mistake in inventory tracking very differently than someone who tries to cheat the system.”

Kelly says he recently paid off the lien for Mary Jane’s Pot Shop and that it should take 30 to 60 days to clear with the DOR.

Cooperation with the DOR seems commonplace, as Sweet Leaf Cannabis located in Springfield also has a lien worth $326,844, but has a payment plan in place with the department.

Jamaica Joel’s, located in downtown Eugene, has a $94,873.74 lien against it for not paying retail marijuana taxes. Its owner, Travis Higbee, declined to comment.

Cannabliss, which operates in Portland, Eugene and Springfield, is another retailer that ran into financial difficulties. According to The Oregonian, Cannabliss’ owner, Matthew Price, was charged in April with four counts of willfully failing to file personal income tax returns, and the DOR placed a $110,536 lien against the retailer for not paying marijuana taxes in 2016 and 2017.

In an email response to questions regarding Cannabliss’ finances, Price writes that Cannabliss, like other retailers, worked with the state and was able to pay off the lien in full.

“It is incredibly important for businesses and owners that may have fallen behind to reach out and work on terms with the state,” Price writes. “They are great to work with and don’t want to see people close down. Cannabliss did have a payment plan but it was paid in full.”

Price writes that the retail marijuana market in Eugene is changing due to the city’s refusal to pass an ordinance that would require retailers to be at least 1,000 feet away from each other. He refers to the city’s current policy as a “silly experiment,” and writes that the lack of a policy was meant to weed out the strong retailers from the weak, but ultimately smaller retailers suffered.

“Eugene did the opposite of what the intention was and is hurting the mom and pops. Not helping them,” he writes.

It’s unclear whether the 1,000-foot rule would make reduce the number of retailers with unpaid marijuana taxes in Eugene. Portland, which has enforced the ordinance since 2015, has 11 retailers with unsatisfied liens for marijuana taxes, according to the Oregon Secretary of State’s Uniform Commercial Code records.

Price writes that due to the lack of regulation, the future of the marijuana retail market in Eugene may be cloudy.

“It’s unfortunate, and I think we are going to see a ton of ramifications because of it. Taxes will go unpaid, leases will be terminated, employees will lose their jobs. I think the only people that will make money will be the attorneys.”

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