‘AN INDUSTRY ON THE BRINK’
10 years later, shops struggling with competition, taxes, regulations
For Karing Kind, the first marijuana dispensary in Boulder County to open for recreational sales on Feb. 18, 2014, business was great when recreational marijuana was legalized in Colorado.
A decade later, the grass is not as green.
“It was great in the beginning with lots of tourism, and now other states are opening up so we’re definitely seeing a decrease in the market,” Founding Owner Dylan Donaldson said. “We’re just doing the best we can to keep up with all that and serve our awesome, loyal customers.”
Donaldson said he’s proud his business, which first opened in 2009 for medical use north of Boulder, is stable and has been able to survive this long.
But for other cannabis business owners in Colorado, that’s not the case.
“We’re looking at an industry on the brink,” said Truman Bradley, executive director of the Marijuana Industry Group. “If things don’t change, we will continue to see small businesses close their doors.”
MIG is the trade association for regulated cannabis businesses in Colorado. Founded in 2010, MIG works alongside lawmakers to make sure Colorado’s recreational marijuana legalization, being one of the first states to do so, went smoothly and compliantly.
Now, Bradley said, the marijuana industry is struggling.
“Businesses in Colorado are really struggling with overburdensome regulations, massively unfair federal tax rates, and — it must be said — in some ways we are victims of our own success,” Bradley said. “People don’t come to Colorado for cannabis tourism anymore because, with the exception of Florida and Texas,
recreational cannabis is legal in almost every major metropolis in the country.”
Although numerous states allow recreational cannabis, marijuana is still classified as a Schedule I drug alongside heroin, ecstasy and other substances with a high potential for abuse in the eyes of the United States Drug Enforcement Administration.
But Adam Goers, who is the senior vice president for corporate affairs at The Cannabist Company, which is the parent company of Longmont’s Medicine Man, said he and his colleagues are “incredibly optimistic that change is going to come.”
“Seventy percent of Americans are supportive of legalization,” Goers said, citing Gallup poll data. “We know that it’s not an if, it’s a when, that we’re going to see … changes.”
Even at the local level, the marijuana industry faces rules and regulations that other businesses don’t, such as a four-store cap on dispensaries in Longmont.
While Boulder does not have a cap on marijuana licenses, it does have a density restriction of no more than three cannabis businesses within 500 feet.
Several towns and cities in Colorado still don’t even allow the sale of recreational marijuana in their jurisdictions a decade after its legalization. In Boulder County, the town of Erie still does not allow retail marijuana while Superior only recently voted to allow two shops.
And yet, the different types of products that cannabis businesses offer their customers has continued to grow and flourish over the years, from low-dose edibles to smokable marijuana.
“We have a plethora of types of products … ingestibles, (inhalable items) like a vaporization device … balms or transdermal patches, and in very precise dosing,” Goers said. “The dispensary that you come into today is very different than the first ones that were opening in the state 10 years ago and I think that’s a really important concept that we’ve progressed as the consumer has progressed and vice versa.”
‘We’ve gotten more competition’
Brian Lewandowski, the executive director of the Business Research Division at the University of Colorado Boulder’s Leeds School of Business, said the industry is entering the mature stage of its life cycle in Colorado.
“We had the first mover advantage, but as other states legalize, that’s perhaps more competition for Colorado producers,” Lewandowski said. “Even though the product can’t be moved from state to state, when we think about people who would even visit Colorado and become customers, I think we’ve gotten more competition because of legalization in some of those other states.”
CU Boulder partners with the Colorado Department of Revenue’s Marijuana Enforcement Division on an online dashboard that tracks marijuana sales, licenses, prices and more.
Total marijuana sales from the time of legalization through August 2023 surpassed $15 billion, according to the Department of Revenue. According to the dashboard data, monthly marijuana sales peaked statewide in July of 2020. Since June of 2021, percent change year-over-year for monthly sales has been negative.
Prices are also decreasing and marijuana business licenses are on the decline. The average price per gram of recreational marijuana flower in 2023 was the lowest it’s been since legalization.
Lewandowski said there are a few reasons why prices and sales might be declining. Similar to when computers become cheaper due to technology improvements, producing marijuana may be becoming more efficient, thus lowering prices.
He said it’s impossible to tell whether businesses are selling the same quantity or less. Price compression could mean the same quantities of product are being sold for less money or it could mean less product is being sold.
The quantity of marijuana being sold is not tracked by the dashboard, and neither is the number of people creating their own product in small amounts at home.
“We continue to see some companies really thrive, but the fact that some companies are getting bought out or even closing down I think that suggests it’s a harder business than it was in 2014,” Lewandowski said.
Bradley said there are things that have gone well since legalization. Public safety has been protected with no appearance of organized crime or cartels, businesses are compliant and it’s created new jobs and tax revenue to fund initiatives like youth prevention, mental health and impaired driving prevention.
However, Bradley said, there are other aspects of Colorado’s legalization model that need to change moving forward. For one, he said, the existing tax rates and regulations are not sustainable for the industry and even redundant or wholly unnecessary.
“Tax rates of 15% at the state level and up to 10% or even 12% at the local level are simply not sustainable in a mature industry,” Bradley said. “You don’t see these kinds of tax rates in other established industries such as alcohol, or frankly anything else.”
He said an increasing number of licenses are being surrendered and businesses are closing their doors at an alarming rate, especially on the cultivation side. Bradley said Colorado lost 10,000 cultivation jobs last year alone, about 25% of the workforce.
“These are your neighbors, these are your friends,” Bradley said. “These are people that take their kids to the same daycare that you take your kids to. These are people in and around our community that have lost their jobs.”
The decline has also affected tax collections. Colorado brought in almost $100 million less in tax revenue in 2023 compared to two years prior, Bradley said. That’s money gone from youth prevention and mental health causes funded by marijuana tax. He said local governments are trying to figure out how to contend with reduced weed tax revenue and fund needed programs.
“It’s clear that the regulatory model got a number of things right and it’s also clear that decade number two of legalization needs to look fundamentally different than decade one,” Bradley said
Donaldson said one of the biggest changes in the last decade is the social acceptance of marijuana. People are more educated about consumption, safety and products. Moving forward, he hopes the state will reevaluate its regulations.
“I think there’s a little bit of overregulation right now. I think that it makes it tougher for businesses to comply with certain stricter guidelines,” he said, adding, “I would hope that they have more common sense regulation as it moves forward and get rid of some of the handcuffs and regulations that were more fear-based when the industry was just getting going.”