James Clark nervously consulted his partner, Claire Firestone, in the parking lot outside their shop last week.
Over the past year, since city officials began integrating the cannabis industry into the local economy, their lives have been committed to seeing their vision for Farmhouse Artisan Market through.
After receiving their permit from the Bureau of Cannabis Control the day before – now on the cusp of opening Petaluma’s first-ever delivery retailer – the founders were worried about any whiff of noncompliance that might cause everything to collapse.
“It’s been a lot of hurry up and wait,” said Firestone, the CEO of Farmhouse, which officially launches Nov. 17.
Nearly one year ago, the Petaluma City Council crafted its policies under the Adult Use of Marijuana Act, which was passed by California voters in 2016, legalizing recreational cannabis.
After weighing its options, the council decided to allow two delivery-only retailers and an unlimited number of specialized manufacturers and testers in designated business zones. Brick and mortar dispensaries remain banned within city limits.
Implementing those policies has been a challenge, though, with federal, state and local regulations caught in an ever-changing web of bureaucracy. And the environment around the industry itself has made viability a challenge for small-scale operations, said Clark, Farmhouse’s COO.
A lesser-known aspect is a steep federal tax on cannabis businesses that goes back to a judicial precedent set in the Reagan Administration. Under Section 280E of the IRS code, since they are “trafficking” a Schedule I substance, cannabis businesses aren’t allowed to subtract expenses before calculating taxable gross income, which is where many companies derive profits. Clark estimated FAM will pay 45-50 percent.
Petaluma, on the other hand, is regulating the company as a regular business, taking .016 percent from every $1,000 earned.
“There’s not a lot of money to be made in cannabis at this point, at least in retail,” Clark said, pointing out how vital branding is for sustained success. “It’s really a long-term play. People are running on 5 percent margins, which is insane in business. You’re supposed to have a 30-, 40-percent margin.”
Additionally, Farmhouse’s founders said it was “very difficult” to locate a space in Petaluma’s stringently-approved business zones.
A string of violent home invasions at grow operations throughout the county earlier this year left landlords reluctant to open up their facilities, Firestone said. Their current lease came courtesy of an unexpected referral.
“It’s taken a lot of networking to be able to get anything done here,” she said.
Out of the more than 30 cannabis-related inquiries — many of which were exploratory or on behalf of another party — only two licenses have been issued, said Petaluma’s Economic Development Manager Ingrid Alverde.
In June, city officials selected Farmhouse after receiving seven proposals for cannabis delivery retailers. The city was initially expecting to send out a second request to fill the remaining vacancy by the end of the year, but Alverde said they may hold off to see how its inaugural ordinance plays out.
“Our bigger goal is to get the first (delivery retailer) up and running and make sure there are no issues — either with our polices or on their end moving forward — so we can iron those out,” she said.