In Denver January 1, 2014, marked a historic moment when Sean Azzariti, an Iraq War veteran, became the first person in the U.S. to purchase legal cannabis.**
Over a decade later, 3D Cannabis, the Denver dispensary where Azzariti’s landmark purchase took place, stands desolate in the Elyria-Swansea neighborhood. Its once-vibrant storefront now features a “temporarily closed” sign, with boarded-up windows and doors, and a parking lot littered with trash.
This disheartening scene is emblematic of the broader struggles faced by Colorado’s cannabis market. Once hailed as a model of success, the state’s cannabis industry is now grappling with a slew of business failures and financially strained entrepreneurs. The industry is burdened by regulatory challenges, market saturation, and stiff competition from neighboring states, posing a cautionary tale for newer markets trying to avoid similar pitfalls.
In its early years, Colorado’s cannabis market thrived, turning local entrepreneurs into national success stories. The allure of the “green rush” attracted ambitious professionals and investors from all over, eager to capitalize on the burgeoning industry. By 2020, sales hit a peak of $2.2 billion. However, just three years later, that figure dropped to $1.5 billion, leading to widespread layoffs and closures. The state’s tax revenues also took a hit, plummeting to $282 million in the last fiscal year, a decrease of over 30% from two years prior.
Several factors contributed to this downturn. A post-pandemic supply glut caused cannabis prices to drop sharply. Additionally, the rise of cheap, largely unregulated hemp-derived products exacerbated the competitive pressures. The continued federal illegality of marijuana further complicates the market, resulting in exorbitant taxes and regulations for operators.
“It’s like the wind has been completely sucked out of our cannabis sails in Colorado,” remarked Wanda James, founder of Denver’s Simply Pure dispensary, one of the state’s first recreational outlets.
More than any other challenge, the rapid spread of legalization across the U.S. has significantly undermined Colorado’s market. States like New Mexico and Arizona, among 24 with legal adult-use marijuana markets, have disrupted the business plans of dispensaries along Colorado’s borders. As legal cannabis becomes more accessible, the novelty that once drew tourists to Colorado has faded, with fewer out-of-state visitors seeking the “Rocky Mountain high.” Even Texans, previously among the most frequent out-of-state buyers, are now staying home, satisfied with the availability of intoxicating hemp products in their own state.
Colorado’s pioneering role in cannabis legalization now serves as a warning to states launching their own cannabis programs. New York’s cannabis officials recently cited Colorado’s market downturn to justify a cautious approach to issuing licenses.
“We’re a victim of our own success,” said Jordan Wellington, a partner at the Denver-based cannabis policy firm Strategies 64. He pointed out that new markets siphoning off investment and sales are among the challenges Colorado faces.
Despite the market’s decline, some Denver dispensary owners have managed to persevere.
Greg Gamet, 52, founded Dank in 2009 under Colorado’s medical marijuana program with just $6,000. Passionate about the plant, Gamet initially grew marijuana in his basement until his wife’s pregnancy prompted him to relocate his operations.
Dank, located in an industrial zone of Park Hill, is tucked behind an auto shop and upholstery business. Inside, Bob Marley posters and images of cannabis plants adorn the walls.
“When we were making money hand over fist, Dank provided meals for employees, covered all health insurance costs, and even hosted weekly staff parties,” Gamet reminisced. “Every cabbie dropping off a customer got a tip too.”
But those generous days are gone. “We used to operate without worrying about budgets because the margins were so high,” Gamet noted.
Astute business operators have navigated the downturn, but many have shuttered or left the state. According to state data, the total number of cannabis licenses fell by over 16% last year, with cannabis jobs also declining by 16%, as reported in Vangst’s 2024 jobs report.
Maggie’s Farm, a southern Colorado retailer, closed five of its eight dispensaries earlier this year, while Curaleaf, one of the largest cannabis companies in the U.S., shut down its Colorado operations in January.
Karson Humiston witnessed the market’s decline firsthand. After college, she moved to Denver to intern at Dank, hoping to immerse herself in the cannabis industry. Her side business connecting job seekers with cannabis employers grew so quickly that she left her internship to focus on it full-time. Her career fairs in 2016 and 2017 were immensely popular, but by last summer, no companies were interested in participating.
The pandemic-induced cannabis boom of 2020 saw sales surge as people, armed with stimulus checks, indulged in legal weed. Denver’s dispensaries, initially ordered to close, were soon allowed to reopen under public pressure.
Simply Pure experienced its best years during the pandemic, with sales up 60%. However, the subsequent cultivation expansion led to an oversupply, causing wholesale cannabis prices to plummet from nearly $1,700 per pound to about $700 per pound.
“The biggest challenge was that there was never enough weed,” said Jon Spadafora, CEO of Veritas Fine Cannabis. His company expanded its production capabilities, assuming the demand would persist, but the market’s return to normalcy triggered a sharp decline.
Veritas, which had grown to 144 employees, now operates with just 21 after downsizing in 2022. They adjusted their cultivation methods to improve efficiency and began outsourcing production.
Native Roots, which once produced about 32,000 pounds of cannabis annually at its Denver facility, halved its production by mid-2023 to adapt to the market conditions. Unlike many others, Native Roots survived partly because it owns 21 dispensaries across Colorado.
“To stay afloat, we’re cautious not to oversupply ourselves,” noted Jason MacDonald, head of production at Native Roots.
Beau Whitney, founder of Whitney Economics, explained that boom-and-bust cycles are typical in new cannabis markets. Initially, low supply and high demand create lucrative opportunities, attracting more businesses. As the market matures, prices stabilize. This pattern is expected to smooth out as more states legalize cannabis, leading to a normalization of prices nationwide.
The impact on Colorado’s market is starkest along the southern border, where sales have dropped nearly 50% as New Mexico and Arizona’s markets flourish. Las Animas County, near the New Mexico border, has seen the steepest sales decline.
Competition isn’t just from legal weed in neighboring states but also from regulatory discrepancies. New Mexico, for instance, allows adults to purchase up to two ounces of cannabis, double Colorado’s one-ounce limit, and permits higher dosage edibles. These lenient regulations attract customers from nearby states who once relied on Colorado.
Moreover, the proliferation of intoxicating hemp cannabinoids, like Delta-8 THC, has further strained Colorado’s market. These products, less regulated than cannabis, can be bought online and delivered discreetly, appealing to consumers in states without legal cannabis.
Colorado’s cannabis businesses argue that their state’s stringent regulations and high taxes put them at a disadvantage. Regulations like seed-to-sale tracking, testing requirements, and separate license renewals for medical and recreational sales are costly burdens.
Legislative efforts, such as a bill signed by Governor Jared Polis to streamline some of these processes, aim to reduce these burdens. Yet, the high tax rates, set by voters and allocated to school infrastructure, remain largely untouchable.
Federal prohibition adds another layer of complexity. The 280E tax code prevents cannabis businesses from deducting typical business expenses, leading to significant financial strain.
“It’s not that making money in Colorado is impossible,” said Chris Woods, CEO of Terrapin Care Station. He emphasized the need to scale operations or secure additional capital to navigate market trends. Woods decided to sell his retail licenses in Colorado, shifting focus to Pennsylvania, where the potential for growth seems more promising.
Despite these challenges, Colorado’s early legalization has fostered success stories. Wana Brands, a leading cannabis edibles company based in Boulder, has flourished. Founded in 2010 by Nancy Whiteman, Wana specialized in gummies and invested in state-of-the-art production technology even as others scaled back.
Whiteman’s business acumen led to a lucrative deal with Canopy Growth, a major Canadian cannabis producer, valued at $350 million. This success story underscores Colorado’s lasting influence in the cannabis industry.
Wana has expanded to 17 states and Puerto Rico, with plans to enter Europe. “Establishing our roots here early gave us a significant advantage,” noted Wana’s Chief Marketing Officer Joe Hodas.
While the Colorado cannabis market has seen its ups and downs, it continues to shape the national landscape, setting precedents and providing valuable lessons for the industry at large.
“Colorado’S Weed Market Is Coming Down Hard and It’S Making Other States Nervous.” Https://Www.Yahoo.Com, 10 Jun. 2024, www.yahoo.com/finance/news/colorado-booming-weed-market-went-110000414.html. Accessed 10 Jun. 2024.
