Vashon Velvet's owner Susie Gress sells out of every gram she produces, and she can’t turn a profit. Lester Black

It would be easy to mistake the Vashon Velvet pot farm for just another attractive Vashon Island estate: a picturesque farmhouse and a two-story horse barn sit in a grassy field surrounded by woods. A single deer lazily prances across the property. A long gravel driveway wraps far enough away from the road to give the home's occupants plenty of privacy.

The twist comes when you open the barn doors and see what's inside: pot plants lined up in rooms, buds tipped in frosty white hairs shooting toward LED lights hanging from the ceiling.

It's the most idyllic pot farm scene I can imagine. Susie Gress, the owner of Vashon Velvet, says she completely sells out of every gram of pot she produces. From personal experience, her Liberty Haze is amazing.

But that doesn't mean she's making any money.

"We get calls from people every day about when we can sell more. But even with that kind of success, we are only able to pay the bills," Gress said. "I haven't taken a dime out in terms of salary or profit."

Is Gress just doing bad business or are the odds stacked against small producers like her? An analysis of the state's seed-to-sale database shows that Gress isn't alone. In fact, there are very few small weed farms making much pot (in terms of market share) at all.

Between June of 2016 and June of 2017, Tier 1 producers—the smallest of three farm sizes licensed by the state—grew less than 3 percent of Washington's legal pot. In July of this year, Tier 1 producers sold only 2 percent of all cannabis on the market.

It appears that, as of last month, only half of Tier 1 licenses are even trying to turn a profit anymore. According to information from TopShelfData.com, of the 214 licensed Tier 1 producers, only 118 of them, or 55 percent of licensees, reported revenue to the Washington State Liquor and Cannabis Board in July. Of those 118 businesses reporting income to the WSLCB, only 50 reported bringing in more than $10,000 in income for the month.

When the state created the rules, it specifically tried to make small farms like Gress's economically viable by creating three different sizes of producer licenses. Allowing different license sizes, the thinking went, would allow the market to support small producers. That doesn't appear to be happening.

Debbie Kracht, who owns Honey Creek Enterprises, one of the other eight active Tier 1 producers in King County, said expensive regulations, a glut of weed in the market, and the state's 37 percent excise tax on pot make it almost impossible to run a profitable Tier 1 farm.

"The biggest problem we have in Washington is the amount of taxes—there's just not room for profit," Kracht said.

Gress said her biggest limitation is Tier 1's 2,000-square-foot limit on growing room. The WSLCB recently considered expanding the canopy for Tier 1 producers from 2,000 square feet to 4,000 square feet, but ultimately the board voted down the proposal, opting instead to allow producers to expand their growing space by buying up to two more producer licenses.

Gress said that wouldn't solve the problem. Buying a Tier 2 license, which would give her up to 10,000 more square feet to grow pot, would run her $50,000, she estimated. Gress wants the state to adopt a policy similar to Colorado, where producers are able to upgrade their license to a higher tier by demonstrating they are selling all of their product.

Kracht worries that the board's decision to let producers own multiple licenses will let the state's biggest farms, which were previously limited to 30,000 square feet of growing space, take an even larger share of the market.

"If the big Tier 3s can now go to 90,000 square feet, I just can't even imagine how cheap they could sell it. They can dump product onto the market until they squeeze out anyone that can't hang on," Kracht said.

Aaron Pickus, a spokesperson for the Washington CannaBusiness Association, a trade group Gress is a member of, said they are in favor of the WSLCB adopting a rule like Colorado's, which allows producers to increase their tier.

"Tier's 1s can be successful, but they are very much constrained by the artificial limit," Pickus said. "We should allow them to grow and compete based on the popularity of their product and not just based on the license they originally applied for."

Mikhail Carpenter, a spokesperson for the WSLCB, said the board needs to find out how much square footage the entire market is using before it can consider rules allowing licensees to change tiers. The WSLCB knows how much total square footage is licensed—referred to as "canopy" in the industry—but not how much of that total is being used.

"We are currently working to verify current canopy in production. The board has indicated they would consider proposals to increase the canopy with more information," Carpenter said in an e-mail.

Tier 1 growers aren't the only producers struggling. Producer license holders of all sizes frequently complain that the state gave retailers power over the industry by licensing fewer than 500 stores but more than 1,100 producers, leaving producers in a bidding war to compete with each other to get their products on the shelves of pot shops. And a sizable portion of licenses for Tier 2 and Tier 3 farms are also inactive, albeit at a lower level than Tier 1 farms. Last month, only 62 percent of Tier 2 licensees and 59 percent of Tier 3 licensees reported income to the WSLCB.

Carpenter said the WSLCB expected some cannabis license holders to go out of business.

"When we were writing the rules, we expected a 50 percent business failure rate," Carpenter said in an e-mail. "It's also important to remember that business acumen was not a requirement to apply for a license, all it took was $250. We don't assess the validity of someone's business/plan; we assess their suitability to hold a license."

Vashon Velvet is a very small operation, even compared to other Tier 1 producers. Gress's brand produced only 16 kilograms of pot over the last 12 months, whereas the median production number for Tier 1 producers was 120 kilograms. Kracht's Honey Creek Enterprises grew 139 kilograms. Gress attributes that to the types of strains her farm specializes in.

"These are unusual strains, and they are really hard to grow," Gress said. "That's probably not the best business plan if you want to get rich overnight, but it's best for us because we want to do what we are doing."

To Gress, it shouldn't matter how much total weight she is producing. State regulations allow boutique breweries and wineries to turn a profit even when they are producing a tiny fraction of what large companies produce. Will Washington's legal marketplace be able to support tiny producers like her? That question is still up in the air.