Ten years after Colorado joined Washington as the first two states to legalize recreational cannabis, the Rocky Mountain state’s industry is in dire straits. Long seen as a pioneer of sorts in the United States legal cannabis market, Colorado is dealing with market forces that are squeezing cannabis professionals across the industry and leaving the future of many of the state's cannabis businesses in serious jeopardy.
According to Colorado Marijuana Enforcement Division figures for the second quarter of 2022, there were more than $911 million in total cannabis sales in the state for the year. According to the report, this represents a 21.5% decrease over the previous year.
How much does cannabis cost in Colorado?
In addition, the report states that the average price per gram of cannabis flower stands at $3.85, 24.1% less than the average price a year ago.
Andrew Livingston, the director of economics and research for the cannabis law firm Vicente Sederberg, described a “significant decline” in the state’s number of cultivation licenses, which is currently below 800. In addition, he mentioned that the price per pound of cannabis flower in Colorado is now at $658 - the lowest since October 2018, when it dropped to $759 a pound.
“Cultivators in the state are forced to react to the market pressures they see around them, and as a result, we are seeing some cultivators drop out of the market.”
The lowest medical cannabis sales since 2014
The highest-ever one-month marijuana sales were in July 2020, when sales totaled more than $226 million. In August 2022, that figure was only about $150.5 million, according to the Colorado Department of Revenue. The figure was over $192.8 million the previous August, a drop of 22%.
Also, in August, medical sales stood at $18.9 million, the lowest one-month amount since adult-use cannabis sales began in January 2014.
In June, Denver’s Buddy Boy Brands permanently closed its seven dispensaries. In a statement released in July, Tiffany Goldman, the board chair of Colorado’s Marijuana Industry Group, said, “in the future, we hope lawmakers and elected leaders will understand the sad reality that Colorado cannabis businesses are struggling and that we must work to protect an industry that provides good paying jobs and tax revenue for our state.”
In late October, Denver’s Westword reported the closures of all three TweedLeaf dispensaries in the city, the Urban Dispensary and the Green Solution dispensaries. In addition, all four metro locations of The Clinic dispensary have closed and are now LivWell locations.
The impact of COVID-19
Andrew Livingston stated that the impact of the COVID-19 pandemic on the current state of affairs should not be underestimated.
“The global pandemic drove some individuals to consume more cannabis because they couldn’t spend their money on other experiences. They couldn’t go on vacation or out to restaurants. To ensure there were not supply shortages, Colorado cultivators responded to this increase in pandemic-induced demand by expanding supply.”
He added, “we are seeing the market respond in a significant way to the fact that there is excess cannabis on the market, and the supply is likely now larger than demand. It's driving prices lower on both the wholesale and retail level and pushing some Colorado cannabis cultivation entrepreneurs out of the market.”
Many of these cultivation facilities are designed to run at a specific capacity. Livingston said that some cultivators might try to weather the storm by downsizing and growing less cannabis than they had in years prior. But many cultivators, particularly the smaller ones, may not be able to stay afloat given current market prices. He added that cultivating less is easier said than done and that less cultivation means less revenue and potentially less profit. This may not be a good option for businesses that have significant debt from the loans they took to cover cultivation buildout in the first place.
“In many ways, it's not their fault. They expanded cultivation because they needed to meet the demand that was increasing in 2020 and 2021. The sad reality is that the COVID-related demand spike was not a natural growth in demand. It was likely a result of the reality that cannabis consumers, and the rest of society, were stuck in their homes. Coloradans were consuming more cannabis because they couldn't spend their money on social experiences,” Livingston added.
Colorado Springs to vote on cannabis legalization
One market factor that could help the state’s cannabis market may occur on Election Day. On November 8th, Colorado Springs residents will vote on Ballot Issue 300, which would legalize recreational cannabis sales in the city. Ballot issue 301 affixes a 5% tax on sales.
As Anthony Carlson of the campaign “Your Choice Colorado Springs” said, “right now, it’s 100% legal to possess and consume recreational cannabis in Colorado Springs, but what’s been banned is the sales of it. What that means is every single day, folks go to Manitou Springs, Pueblo, Denver, to purchase their cannabis, just to bring it right back to Colorado Springs…Our city gets none of the sales tax dollars that come with it.”
The measure would allow the city’s existing 114 medical marijuana dispensaries to apply for licenses to sell recreational marijuana.
A more seasoned cannabis compliance landscape?
According to Genevieve Meehan, Director of Regulatory Compliance at Vicente Sederberg, over time, the authorities in charge of Colorado’s cannabis market have become more seasoned and knowledgeable than their counterparts in emerging legal cannabis states.
“The maturity of the Marijuana Enforcement Division and the kinds of enforcement you see in Colorado is a little bit different than in states that are newly coming online. Colorado has regulators that do understand some of the nuanced issues that face the industry and very often work collaboratively with operators to put forth rules and regulations that benefit operators.”
She also said that many cannabis operators take a stance toward compliance that goes above and beyond the state's requirements.
“Colorado has seen a lot of operators who, beyond just achieving compliance, have set the standard for what the operational cannabis market can look like.”
Meehan described this as including “implementation of best practices and really taking pride in these operations for quality cannabis. Also, still focusing on access for consumers who are looking for a wide variety of products and good prices.”
When asked if lower cannabis prices in Colorado affect compliance, Meehan said that “maybe in a roundabout way. Companies may not have as much manpower or revenue, so they’re focused on the prices. Maybe they’re not focusing much time on compliance because they’re dealing with the lower prices and all these other headaches.”
But as Colorado’s legal retail market celebrates its tenth anniversary, Meehan sees bright spots beyond the declining revenue and prices.
“We’re currently celebrating ten years of implementation. The support from elected officials who were previously opposed to the regulated adult-use cannabis market, I think, speaks volumes to the success of the program.”
This year has also seen some updates for Colorado’s legal cannabis market. Since July, under Colorado law HB 21-126, licensed Colorado cannabis growers can receive approval to change the designation of cannabis products from the retail to the medical market. The bill’s supporters have stated that it will allow the industry to better answer the needs of the state’s medical cannabis program.
Also, since January 1, 2022, medical and recreational cannabis dispensaries are not allowed to sell more than 8 grams of cannabis concentrate to adults over 21 and no more than 2 grams to customers aged 18 to 20. They must also hand out a “tangible education resource” to customers who purchase concentrates.