Regulatory burdens, an oversaturated market and increasing competition from nearby states have all landed major blows to Colorado's cannabis market, leaving other states with newer marijuana markets scrambling to avoid the same mistakes. | Photos by Patrick Cavan Brown for POLITICO
For years, Colorado’s marijuana market boomed, minting successful local entrepreneurs who bootstrapped small businesses into national brands. But what was once a success story has now left a trail of failed businesses and cash-strapped entrepreneurs in its wake. "It's like the wind in our cannabis sails in Colorado has just been sucked all the way out," said Wanda James, the founder of Denver dispensary Simply Pure, one of the first adult-use dispensaries in the state.
When his wife got pregnant, she told him in no uncertain terms to get his grow out of their basement. “Her ballbusting got me to this commercial space,” he says. “All that stuff went away,” Gamet says. “You used to run your business and not even worry about budgets … because it was just so much money. How can you screw up 50 percent margins?”
“It was one of the most successful things we did,” Humiston said. “And then we did it again in 2018. And we did it again in 2019.” Simply Pure saw its two biggest years during the pandemic, with sales up 60 percent. But that all came crashing down when cultivators thought the pandemic boost would last and increased cultivation capacity, James says.
“We all overestimated the market,” Spadafora says. “We all believed a little bit too much of our own PR.” Production is picking back up, but the company is keeping a careful eye on the market. Part of what helped Native Roots weather the downturn is that it has 21 of its own dispensaries across the state.This type of boom-and-bust cycle is to be expected for any state launching a new marijuana market, says Beau Whitney, founder of Whitney Economics, which tracks the cannabis industry. Initially, supply is low and profits are high, which draws in new businesses.
There’s also the added wrinkle of intoxicating hemp cannabinoids. The market for products like Delta-8 THC boomed in recent years as hemp producers figured out how to exploit a loophole in federal laws that allowed them to sell intoxicating products. Since then, many hemp producers have focused on the more lucrative intoxicating products, which aren’t subject to costly state cannabis regulations.
But a bill introduced by Republican Sen. Kevin Van Winkle and Democratic Sen. Julie Gonzales would fix that, along with other regulatory burdens facing the industry like a requirement to use radio frequency identification tags for plant tracking. Polis signed the bill Wednesday. When it comes to maturing cannabis markets, “you always see the inflection points where you’re either going to have to double … your footprint in order to make money in terms of an economy of scale or take out additional capital to kind of deal with the market trends,” he says.
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