Once the leading marijuana store in Jefferson County, Greg Brotherton’s Sea Change Cannabis is now barely out of last place

Brotherton is running for Jefferson County Commissioner on his record as a successful entrepreneur.  He used early profits from his marijuana business to fund opening of his Discovery Bay grocery store, the Disco Bay Detour taproom and a small recording business.

At his Sea Change Cannabis website, Brotherton states that his pot shop has “assisted in the success” of these other businesses.  He has claimed that his co-dependent businesses employ as many as thirty people, although that number has varied by as much as 33% in different statements.

Brotherton in 2017 was named Young Professional of the Year by the Jefferson County Chamber of Commerce.

The cash cow that has been supporting his non-pot businesses and fueling his reputation as a successful businessman may be running dry.

Brotherton’s remarkable success early in the pot store’s life seems to have been due to the fact he faced little to no competition and was able to charge high mark-ups.  Now that other retailers have opened, Sea Change Cannabis is on a marked downward slope in gross revenue.  He has posted a drop of more than $100,000 a month in revenue since his peak in August 2015.

Meanwhile, his competitor across the street, Discovery Bay Cannabis, is enjoying steady revenue growth and passed a declining Sea Change Cannabis in monthly sales a little over a year ago.  Sea Change Cannabis is now barely out of last place among pot shops in Jefferson County in month-to-month sales.

The June 2018 gross numbers show it can’t be easy going.  According to 502 Data, a private company that tracks the marijuana industry, Brotherton’s pot shop earned just over $42,403.  That seems a truly impressive sum until you consider that $15,689 off the top went to the State of Washington in marijuana taxes.  That leaves less than $26,714 to cover inventory, payroll, and everything else.

How close to the edge is Brotherton operating?  He may be operating in the red.

According to Marijuana Business Daily, retail markups at Washington marijuana retailers have dropped dramatically as the state’s taxing structure went to a 37% point-of-sale tax and competition intensified.  Retail markups hit about 3.1x in the Spring of 2015 and had fallen to 2.1x. in November 2016, the most recent data we could find.  That is about when Brotherton’s pot revenues went off that cliff.

If that 2.1% markup is accurate, for Brotherton to have generated $42,203 in gross sales, his inventory cost would have been over $20,000.  After paying those marijuana state taxes, that leaves only $6,700 to cover payroll for five employees, insurance, other state and local taxes, electricity, phone and internet, advertising, rent and the 24/7 video and alarm security he is required to maintain under state law.

The numbers don’t work for Brotherton. His website identifies five employees in the pot shop (he said six during the primary race). At a campaign debate, Brotherton said he pays all employees at least minimum wage.  Managers make much more.  Calculating wage rates for his pot shop’s employees at $15 per hour, his monthly payroll comes to $12,000, significantly more than the $6,700 he would have brought in. And he still has not paid employee health insurance premiums required by Obamacare.

Then there are federal taxes. Because Brotherton’s business is illegal under federal law, he cannot claim the same deductions as retailers who don’t sell (federally) illegal drugs.  See 26 US Code Sec. 280E (prohibiting deduction of expenditures to generate income from illegal drug businesses).  Besides the cost of goods sold, none of what he spent to generate that $42,403 in gross revenue is deductible; the remainder is fully taxable.  But from where does he get the money to cover a significant federal tax bill when he’s already coming up short?

These are calculations based on mostly hard numbers Brotherton can’t escape.  He would not answer any of our questions in researching this article.  But a crime at his business has given us a pretty good idea of the tenuous financial health of his once comfortably successful enterprises.

After his sales had crashed his pot shop was burglarized and its inventory stolen.  The theft of just $10,000 of inventory, he said, threatened not only the existence of Sea Change Cannabis, but also of the other businesses subsidized by pot sales.  According to The Port Townsend Leader, Brotherton said it could be difficult to retain employees in all the businesses.

“There’s a perception that folks in our line of business are swimming in cash,” Brotherton said. “The fact is that we’ve already had to borrow money just to keep the chain open.”

His monthly revenues have continued to drop as competition and the costs of doing business have increased.  At the same time, retail prices–and the mark up a retailer can expect–have cratered due to oversupply.

Which may explain why he is seeking another full-time job as a Jefferson County Commissioner on top of what would be full-time jobs running his pot shop, tap room and grocery store.

The annual salary of a county commissioner is $79,518, plus health insurance for the commissioner and their family and other benefits.

[This report was edited since publication to correct a misstatement of federal tax deductions and link to a report on falling Washington marijuana crop and retail prices].

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