WeedLife News Network
Colorado’s cannabis industry is enduring its first sustained downturn since Recreational Weed Sales Began
Colorado’s marijuana businesses adjust to inflation, market saturation and competition from other states. Municipalities face declining revenues as shine fades from legal weed.
Colorado’s legal marijuana industry is weathering its first sustained downturn since dispensaries began selling recreational weed in 2014.
Dispensaries are closing. New ventures, like delivery services and social clubs, are struggling. Tax revenues are plummeting. And across the industry, layoffs are sending marijuana workers packing. Colorado’s green boom is beginning to bust as more states legalize the sale and use of marijuana and inflation pinches spending.
The contraction is proving a rare vulnerability for cannabis, which seemed immune to downturns as it soared every year since 2014 — reaching $2.2 billion in sales last year.
“More people are going to get laid off. We are probably going to see more small shops close down and a lot of brands are going to go away,” said Spencer Ward, a longtime salesman for Bronnor Corp., which manufactures edibles and infused products for brands that are in 400 stores.
Through July, taxes and fees collected from retail marijuana sales reached $198.3 million, down $53.7 million — or 21% — from the same seven months in 2021. Last year set a record in Colorado, with dispensaries selling $2.2 billion worth of cannabis and the state collecting $423.5 million in taxes and fees.
If the decline carries through 2022, the portion of state taxes on retail marijuana sales flowing to the State Public School Fund will fall to $24.9 million from $31.5 million in 2021, and the retail marijuana sales tax distribution to local governments will drop to $22 million in 2022 from $27.8 million last year.
The decline, which includes a 44% annual drop in medical marijuana sales, “is a big, big deal,” said Truman Bradley, the head of the Marijuana Industry Group trade organization.
“All the programs that rely on marijuana taxes are going to take a big cut,” Bradley said..
A year ago marijuana flower was selling for $1,300 a pound and the trim used for edibles, tinctures and oils was selling for $425 a pound. The latest average market rates released by the Colorado Department of Revenue show flower selling for closer to $700 a pound and trim is $225 a pound, the lowest prices since the state started tracking retail prices in 2014.
Supplies are growing and prices are plummeting as the state continues to offer new licenses and businesses close. The ballyhooed delivery service Doobba has shut down. Buddy Boy dispensaries, one of the pioneers in Front Range cannabis, are closed. Companies are consolidating as business withers.
Dispensary chain Tweedleaf closed its seven stores in Central City, Colorado Springs, Denver and Trinidad in early August after the Colorado Department of Revenue suspended Tweedleaf’s business licenses over unpaid taxes.
Ari Cohen opened Doobba, Colorado’s first marijuana delivery service, in August 2021. Because of a prior marijuana arrest decades earlier, Cohen qualified for one of Colorado’s first social equity marijuana licenses.
Cohen started seeing trouble in the market by October, when the price for flower collapsed.
“I was hoping it was a one-time thing but that pricing continued into 2022 and it never rebounded,” said Cohen, who closed Doobba a few months ago as he neared time to renew the company’s insurance and permit fees.
“I’d say 80% of our customers were outside the jurisdictions that allowed delivery,” he said. “Even if that changes tonight, it will take years for new delivery regulations to wind through all the different towns.”
Like many cannabis insiders, Cohen laments what they call “the race to the bottom.”
Out-of-state operators are making money in markets like New Jersey and New York, so they can take a loss in Colorado, Cohen said.
“I don’t see this industry coming back to where it was,” said Cohen, a marijuana and hospitality business veteran who thinks the state should deploy fair trade regulation for cannabis to protect smaller operators. “We are in a period where the prices for everything are going up but the prices for cannabis are going down while costs are increasing. It’s the opposite of what should be happening. And it’s largely self-inflicted while we are in this race to the bottom.”
Inflation and economic angst are pushing the downturn. Legal weed in neighboring states like Oklahoma and New Mexico — and a total of 19 states that now allow recreational marijuana sales — have taken the shine off Colorado’s once-exclusive reign as the epicenter of legal weed.
Colorado’s border communities are posting the steepest sales declines. New Mexico legalized recreational marijuana sales in April and sales in southern Colorado’s Las Animas County, for example, are in a free fall. Between January and June 2021, Las Animas County dispensaries collected $4.9 million in state sales taxes for marijuana, up from $3.7 million in the span of 2020. Through June this year, marijuana sales tax collections in Las Animas County were at $3 million.
In 2018, the City of Trinidad, just north of the New Mexico border, spent $2.2 million in locally collected taxes from the city’s robust stable of more than 20 dispensaries. A year later the city of 8,000 spent $2.6 million on projects and services. In 2020, cannabis taxes delivered $3.8 million for projects. After beginning to decline in 2021, the city spent just $570,000 of its marijuana taxes this year through April.
“I think that shows that lots of cannabis, up to this point, was going back to neighboring states. I would estimate in the ballpark of a few hundred million dollars in product a year was leaving Colorado,” said Ward, who predicts the stumbling of local Colorado operations will open the door for multistate operations, which have greater purchasing power and can depress prices even further. “It’s about to get harder for smaller operations to compete.”
Increasing competition inside the state is evidenced by Denver’s steadily decreasing proportion of Colorado’s marijuana sales. In 2014, more than 48% of all the pot sales in Colorado were in the city of Denver. In 2021, that proportion fell to 31% as more communities OK’d retail marijuana sales.
This fall, voters in Cripple Creek, unincorporated Jefferson County and Colorado Springs could be weighing legalization of marijuana sales. And voters in Denver could be asked to increase taxes on city marijuana operations to fund out-of-school educational programs for disadvantaged kids.
The proposed My Spark ballot measure could raise taxes on marijuana to generate $22.5 million a year for educational funding for 20,000 kids in Denver. The measure, which mirrors a statewide ballot initiative that failed in 2021 but was a close vote in Denver, could break the marijuana industry in the city, Bradley said. The proposal would bump the city’s taxes on retail marijuana sales to almost 31% from 26.4%. Marijuana revenue for Denver, which reached $72.5 million in 2021 and is projected to reach $85.7 million in tax revenue 2022, makes up more than 5% of the city’s general fund.
“Is marijuana an endless piggy bank or is it a valued community partner? We’ve seen that the tax dollars are valuable, but what about the employees, the business owners and the cannabis consumers? Are they valuable?” Bradley said.
The 2022 downturn is proof that the cannabis industry is not immune to global political forces and national economic challenges. Bradley expects voters will support the legalization measures in Colorado Springs, Cripple Creek and unincorporated Jefferson County. But he’s worried about increased taxation measures that could “kill the green goose,” he said.
“We’ve seen time and time again that communities end up legalizing because they see the value in the regulated market and they see the cannabis industry as a potential solution to help bring more revenue into the community,” he said. “But there is a point where taxation becomes predatory or unsustainable or both. And that’s what we are approaching with ballot measures like My Spark.”
John Bailey, the founder of the Black Cannabis Equity Initiative, said the My Spark tax plan is “about people, not politics.”
“What you are seeing is not a decline, but a leveling off of a saturated industry,” said Bailey, who is part of the My Spark Denver Community Coalition. “Even in the midst of a decline, folks are still buying weed. They may not be buying as much. This is the marketing leveling off and it’s leveling off for a lot of reasons, it could be that we saturated the market with so many businesses.”
Bailey hopes the industry does not get bogged down with political fighting and recognizes this as an opportunity to help underprivileged kids while working to address social equity issues in the cannabis industry.
“This is a people thing. The cannabis industry has been built on the back of Black and brown folks and this is an opportunity to make things right and help Black and brown kids who have been disproportionately impacted by the war on drugs,” he said.
“Ultimately, I think federal legalization is the only way where we can start to grow a stronger industry,” Faille said. “Just being able to source product from other states and have distribution warehouses where that product is actually grown would go a long way. Instead of having a bunch of states that are running things differently.”
© 420 Intel
When you subscribe to the blog, we will send you an e-mail when there are new updates on the site so you wouldn't miss them.