The Story Behind America's First Government-Run Weed Shop

When weed became legal in Washington State, officials in the small town of North Bonneville decided that the best way to cash in would be to open a pot store themselves.

by Bill Kilby
Mar 11 2015, 10:09pm

The latest innovation in marijuana policy is here, and it looks like this. Photos by John Spencer

After the voters of Washington State passed Initiative 502 to legalize recreational pot in 2012, some rural towns and counties—apprehensive about the legal and social implications—began instituting moratoriums on the operation of cannabis stores.

But North Bonneville—a small community of 1,000 residents in the southwestern corner of the state—decided to try and take control of the seemingly inevitable and turn it into a chance for civic rejuvenation.

The plan? City officials applied for their own license to sell weed.

On Saturday, after a year and a half of planning and waiting, the North Bonneville Public Development Authority opened the Cannabis Corner for business, making it the first government-owned marijuana store in the United States. What happens next could inspire other municipalities in Washington State and beyond, many of them desperate to find new sources of revenue for public services.

Entrepreneurial gears started turning in the heads of North Bonneville's elected officials when the Washington State Liquor Control Board—the body that developed regulations for the state's new recreational cannabis industry—announced in 2013 that two licenses to conduct retail sales of cannabis would be allocated to Skamania County. The area includes two small cities and five unincorporated communities situated along the north bank of the Columbia River; the remaining roughly 80 percent of Skamania County land belongs to the Columbia River Gorge National Scenic Area, a federally protected national forest that extends south into Oregon's Hood River Valley, drawing thousands of tourists each year for all manner of year-round outdoor recreation. These visitors routinely pass through North Bonneville, and now there was a chance for the region to offer another kind of recreation that could be more lucrative—albeit not without risks.

As other public servants in Skamania signaled their lack of interest in hosting pot shops, North Bonneville's civic leaders realized in September 2013 that they would likely be home to one if not both of the two cannabis retailers licensed for the county, says North Bonneville Mayor Don Stevens. State regulations specify that pot retailers must be located 1,000 feet away from schools, parks, and other public facilities, effectively ruling out the more populous neighboring city of Stevenson, the only other viable candidate for a recreational cannabis store in Skamania. Because of its size, North Bonneville doesn't have any schools or other sensitive public resources, which makes regulatory compliance for a weed store much easier.

But Mayor Stevens and the city council didn't want to assume responsibility for a private cannabis retailer without ensuring they had the resources to police it.

"We were all looking at [Initiative 502], and one of the things that caught our attention was that the tax money was going up to Olympia and staying there. None of it was coming back to the cities or counties," Stevens tells VICE.

North Bonneville's administration, which has grappled with budget cuts in recent years and currently contracts police services from the county sheriff, believed it couldn't afford to let a private operator open up shop without having a direct means of controlling the cannabis trade.

Inspired by government-created Public Development Authorities (PDAs), which incubated Pike Place Market in Seattle and the Hilton Hotel development in downtown Vancouver, Washington, Mayor Stevens decided it was time to incorporate a PDA for North Bonneville charged with the sole task of developing a retail cannabis store. PDAs are legally autonomous entities which maintain separate finances from their government parents and are operated by their own volunteer boards. Creating a PDA to operate the store puts a "firewall" between the city and the store should any legal or financial liabilities arise, according to Stevens.

The city held a public forum for residents to offer feedback about the project, and heard comments during city council meetings. When I-502 was originally passed, voters in Skamania approved it by 53 percent and North Bonneville approved it by 54 percent, and Mayor Stevens says support and opposition within local meetings broke along the same lines. The city council quickly drafted Ordinance 1028 in November 2013 in order to meet the state's mid December deadline for retail cannabis applications. This legislation established the PDA's charter and bylaws, and appointed its first five-person board. Future board members are selected by the PDA itself, and any profit the PDA earns can be granted to worthy municipal projects, but "not directly to city coffers," according to PDA Board Chair Tim Dudley. (If the city council ever changes their minds about the value of the PDA and store, it can overturn its founding ordinance at any time to immediately dissolve both.)

While the PDA had been formed, it lacked start-up cash. To the consternation of some residents who opposed putting public money at risk, the city loaned $15,000 to the PDA as it began the search for private financing. As commercial banks still can't legally handle cannabis-related funds, the PDA couldn't turn to them for business loans. Instead, they found independent private lenders willing to invest in exchange for higher interest rates, but which allowed them to pay back the city's loan merely months later.

According to Mayor Stevens, once the public funds were repaid, local critics of the project went quiet.

The city also hired John Spencer—a former city administrator for North Bonneville who resigned in 2013 to start Pulse Consulting in nearby Camas—to guide the PDA's development and shepherd its application for a cannabis license. It took over a year for the state to review and approve North Bonneville's application, as the state apparently hadn't anticipated this type of local initiative.

"Two of the reasons it took so long to open was that the Liquor Control Board felt it was incumbent on them to review the entire structure of their codes with us in mind to ensure we actually fit within the rules, and because that if we were successful, other cities would follow," says Spencer. The Washington Liquor Control Board also conducted background checks on city officials and PDA board members. North Bonneville finally received approval for the store in February.

Spencer projects that the store will earn $2.7 million in revenue its first year, with the expectation that much of its traffic will come from tourists. While the PDA has to pay Washington's excise tax for cannabis of 25 percent, it's exempt from federal taxes, "just like the Oregon Lottery or state liquor stores," according to Spencer. This grants the PDA and its store a tremendous advantage over private operators, who are currently disallowed by the IRS from taking tax deductions due to dealing in a federally controlled substance. This has resulted in effective tax rates of 50 to 90 percent for many legal canna-businesses, threatening to put some out of business. The PDA will, however, pay sales tax to the city; Spencer says that even if the store only makes enough to pay employees and overhead costs, "We'll be sending 30, 40 grand of sales tax revenue per year to the city, which is an 8 percent increase to city's general fund. That's significant."

Photo courtesy John Spencer

The Cannabis Corner has no competition for miles. The closest recreational shops are in Vancouver and other parts of Clark County to the west. Skamania County doesn't have any of the medical marijuana dispensaries that still dominate the cannabis market in areas such as Seattle, since they're taxed less, offer lower prices, and are subject to fewer zoning restrictions (the state legislature is currently weighing legislation that would phase out medical dispensaries in Washington by mid-2016). While Spencer and the PDA have some concerns about Washington customers seeking a far lesser taxed product in Oregon once that state's own cannabis stores open next year, Spencer says his conservative business plan for the Cannabis Corner already takes that into account. As supply continues to expand in Washington, the Cannabis Corner's own prices will also decrease, helping the store remain competitive and sustainable into the future.

Once the store has paid off its current loans, subsequent profit revenue will be granted to local organizations in support of purposes outlined in the PDA's charter, including public safety and substance abuse prevention. PDA members attend meetings of the One Prevention Alliance, a local drug awareness coalition that voiced preliminary concern with North Bonneville's plans, along with the county's drug enforcement meeting, every month.

"We spend most of our time talking about the money aspect of this, but the original discussion with the city council was not about money, it was about, 'What if it's Philip Morris that ends up owning this thing? Are we sure Philip Morris is going to have the best interests of the community at heart?' Probably not," says Spencer. "This board has been exceedingly scrupulous to ensure that public health and safety are its primary concerns."

By founding the store, the North Bonneville PDA also created 11 new jobs in town, one of which is held by the Cannabis Corner's store manager Robyn Legun. She applied for the position from Oregon after finding the PDA's ad on Craigslist, having spent "her whole life" working in retail. She laments that many retail positions, where one used to earn a living wage and develop transferable management skills, have been degraded into minimum-wage posts without real learning opportunities. She credits her use of medical cannabis to treat pain and insomnia caused by intensive back surgeries with allowing her to return to her previous retail management job after prescription drugs just made her feel woozy. Now, having relocated to North Bonneville, she looks forward to working with employees who are being paid higher-than-average wages with benefits, and where she can lean on some of her management experience to help others reach their own career goals.

Legun was responsible for picking the store's suppliers and products, which include a diverse range of cannabis strains, as well as edibles, tinctures, concentrates, and accessories—all sourced as locally as possible. Initial business has been promising: 700 customers made purchases on opening day, according to Legun.

The store's suppliers may eventually become more local—Mayor Stevens says he wouldn't be opposed to ancillary canna-businesses such as growers and processors moving to North Bonneville, and that some have already visited to scope out property.

"Without exception they all say they're going create 20 to 30 jobs that will be decent, family-wage, with benefits packages, and that's economic development we could really use," Stevens says.

The Cannabis Corner is also attracting businesses from outside the weed industry. Stevens cites the example of a mother-and-son team of restaurateurs from Vancouver who followed North Bonneville's plans over the past year in local press, and decided to open a pizza-and-burger joint in town this past September, gambling on the prospect of visitors to a new cannabis store and the lack of other restaurants nearby. He says they're doing well already.

Since Saturday, the weed store has grossed nearly $16,000 in sales, says Spencer; slightly lower than his projections but "people are still hearing about it". Regulation prevents the store from engaging in traditional advertising, so the Cannabis Corner must depend on word-of-mouth and press coverage to promote itself.

There are still complications to surmount, of course. The city pot store currently does not have banking services—its PDA status didn't sway federally chartered institutions. They're currently talking with banks in Vancouver and Seattle, to which the PDA will relay its cash deposits via armored car. But once the loans are serviced and overhead costs ironed out, the first spending item on the agenda is rebuilding a public playground that's been standing since the 70s, according to Dudley.

"This way the community can directly see that we're not the bad guys, that positive things can come from what we're doing."

Bill Kilby is a freelance writer based in Los Angeles.