Credit card practices hurt a pot business

Credit card practices hurt a pot business Joan McGuire

The oversupply of marijuana has led to concerns of mass closures of producers and retailers struggling to make a profit because of falling prices. But it is not just an oversaturated market that has created a difficult environment for Oregon’s pot businesses.

Practices in the financial services sector, which is wary of doing business with cannabis companies, are taking a toll on start-up pot businesses.

Renee Spears, the former owner of now defunct Smuggle, an online retailer of cannabis-related products, said excessive credit card processing fees were one of the biggest problem she faced.

Spears, the former owner of mortgage banker Rose City Mortgage, said she had difficulty finding a credit card processing company that would work with her retailer of high-end cannabis accessories.

When she found a credit card processing company willing to do business, the firm charged a 5-6% rate on transactions.

“The fees were so high, it ate into profit,” said Spears.


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Another problem she encountered was leasing a space for a store. Spears wanted to have a store in downtown Portland, but strict licensing rules and a lack of willingness on the part of landlords to lease space to a cannabis business made it difficult to find a location.

Under current rules, a cannabis store cannot be located within 1,000 feet of another pot business or certain establishments, such as a school.

“Even with my business reputation, nobody would lease a space to us,” she said.

a1fbd41d0aa5c4a1e1d620324a3161e2 XLRenee Spears (far left) spoke on an Oregon Business panel discussion on the cannabis sector in October 2016

Spears sold the business to an employee in March last year. That employee then closed the retailer six months later.



The negative experience has put her off trying to get back into the sector. A lot of the people she dealt with in the industry lacked professionalism, said Spears. “Even the product vendors were inexperienced,” she said.

It is difficult to track down solid data showing how many cannabis businesses have closed since the state started approving licenses in the spring of 2016.

Data from the Oregon Liquor Control Commission, the agency that approves permits, show only a small percentage of licenses have been surrendered, 5% of the number of active licenses, since the start of the approval process.

The data indicates the concern over mass closures of marijuana businesses may be more down to anxiety about market conditions rather than actual closures sweeping the sector.

Demand for cannabis is still strong – sales at Oregon’s dispensaries grew 26% over the past 12 months, according to BDS Analytics.


RELATED STORY: CAN OREGON BECOME THE CANNABIS CAPAITAL OF THE WORLD?


It is still early days for Oregon’s recreational use cannabis sector, which is going through growing pains as businesses struggle to establish themselves.

The number of closures may start to accelerate as the price declines of cannabis flower eat further into companies’ margins.

But lower prices are not just the only issues facing marijuana businesses. As Spears found, the financial services sector and stringent regulations create additional barriers.


RELATED STORY: CANNABIS INDUSTRY TACKLES OVERSUPPLY WITH CREATIVE MARKETING


 

 

 

 

Kim Moore

Kim Moore is the research editor for Oregon Business magazine.

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