New laws allow recreational cannabis sales in more than 20 states, but marijuana remains illegal at the federal level, which makes starting a retail business in the industry difficult. This is Part 1 of a series.
If you’re opening a cannabis retail store, you might as well do it on 4/20.
Like Gotham.
“We’re trying to change the narrative around cannabis,” Joanne Wilson, Gotham’s founder and an angel investor whose portfolio includes Parachute Home and The Curbed Network, told us. “We’re the next generation of what we believe cannabis stores are going to look like.”
Located in Manhattan’s East Village, it will be a “concept store” that will radiate “edgy” meets “luxury,” Wilson said, citing trendy stores that commingled streetwear, fashion, and accessories as influences, such as Supreme stores and the Parisian boutique Colette, much mourned when it closed in 2017.
Gotham is expected to be the fourth licensed store to open in Manhattan under a 2021 state law that permits cannabis—previously legal only for medical purposes—to be sold for recreational consumption. And while Wilson has, in every sense, high hopes for the venture, the road ahead won’t be all giggles and munchies.
Budding business: Gotham expects about 15% of revenues to be non-cannabis, including CBD products (which don’t have THC), accoutrements like bongs and ashtrays, and lifestyle products that may not at first blush seem cannabis-related.
If what brings you to the store for a pre-rolled joint or edible is that they help you sleep, for instance, “you can also buy a candle and a blanket” and a sleep mask, Wilson said. “You can access our music lists that are great for sleeping.” And if it’s your anxious, barking schnauzer that’s keeping you awake? “You can also purchase some CBD products for your dog.”
Gotham is a partnership with the nonprofit Strive, whose initiatives for those facing poverty address women’s empowerment, health and wellness, and digital skills.
Seed money: Much of what makes opening a cannabis store complicated—and expensive—is that the drug remains illegal under federal law. So businesses like Gotham get pummeled by the tax code.
Under a federal drug law, 280E, cannabis businesses pay tax rates “that can eclipse 70%,” Politico reported. They’re also prohibited from taking common tax write-offs.
Retail news that keeps industry pros in the know
Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.
What typical retail stores can deduct but cannabis stores cannot include “your construction costs,” Gotham CEO Lukasz Berlinski told us. “You can deduct your employees’ [payroll], you can deduct your insurance…basically, anything that goes into building a business” can be deducted for most businesses, but not cannabis.
Among other ways that cannabis stores in the US are hamstrung, Berlinski said, is that they can’t accept credit cards, because credit-card companies won’t permit cannabis sales, so customers will have to pay with cash or debit cards.
Also verboten: advertising a sale, or even listing it on their website, which is a foundational retail strategy.
“Licensees cannot advertise giveaways, discounts, price reductions, points-based reward systems, or customer loyalty programs,” according to guidelines from the New York State Office of Cannabis Management.
The state also prohibits a store from putting its own logo on its sign, or any imagery associated with what it sells, “including, but not limited to, depicting cannabis, cannabis products, or the imagery or action of smoking or vaping,” the regulation states.
Nor may Gotham admit anyone under 21, or provide samples, which is unsurprising for a drug that’s illegal under federal law, yet decidedly different from how alcohol, an arguably more addictive substance, is marketed.
“You can bring your kid and have cheese and crackers and taste wine,” at some wine shops, Wilson noted.
Growing like a weed: As one of the first licensed retail stores in New York, Gotham expected to have the advantage of being a novelty, but that, in every sense, has gone up in smoke.
An estimated 1,400 unlicensed cannabis stores are operating openly in New York City, which the city has tried to address with fines to landlords who lease space to them.
Wilson had expected some unlicensed stores, but “I did not think that they would pop up like Whac-A-Mole,” she said.
But for all those challenges, Wilson said Gotham will thrive.
“I do what I love to do,” she said, “which is building businesses.”
Next time: Most major banks snub cannabis businesses. We’ll meet a banker who seeks them out.
