Getting back to my interview with the owner of one of Pagosa’s marijuana dispensaries, on the challenges of running a marijuana business.
It’s not easy running a business that’s completely legal under Colorado law, but completely illegal under federal law. And the profit margins — thanks to an oppressive Colorado tax structure — are getting narrower as the years go by.
“There was some money to be made, at the beginning, that made it a little more palatable, but when you’re getting taxed at ‘X’ amount of rate, and they are constantly shutting down your bank accounts… It’s all getting old.
“Now, it’s more or less like owning a restaurant. And the profit margins are thin. With the addition being… say, you’re in the Chinese food industry, and you’ve got five Chinese restaurants on the same corner. Makes it a little tight, you know…”
Did the fact, that recreational marijuana recently became legalized in New Mexico — just across the border — and Arizona — around the corner — have an impact on the viability of the industry in Pagosa?
“Colorado and California and Oregon were the first states [to legalize marijuana]. The advantage of that was, we were first, so all the people in surrounding states would come up to visit our dispensaries, because they could buy it legally. After all the years of it being illegal, it was a trip to come to Colorado — and we saw people, who really weren’t marijuana smokers, come and try it out, just because it was legal again. They’d take selfies in front of the shop and send them back home. ‘Hey, look, I’m at this shop!’ They’d buy t-shirts. It was crazy…
“So we had kind of a long run. But now all the states — Oklahoma, New Mexico, Arizona — are going legal, and that’s pulled a lot of our ‘marijuana tourism’ away.”
“New Mexico and Arizona, when they first open up, they’re going to see a rush [to open new businesses]. Our run lasted about seven years. Theirs is going to last about two years before they run out of money…
“The beauty of our seven-year run here in Colorado — and the ugliness of it — is, there are a lot of people in business who shouldn’t be in business. Because there was so much demand, they could get away with having sloppy business practices. Like Warren Buffet says, when the tide goes out, you get to see who’s swimming naked.
“And that’s what’s happening here. And that’s what you will see in these new states, but a lot quicker than it happened here, because now it’s not a ‘phenomenon’. It’s basically, like I said, like a restaurant business.”
During COVID, the state of Colorado temporarily shut down businesses that were not “essential” in an effort to reduce social interactions. Essential businesses included hospitals (of course), telecommunications, energy production, grocery stores, banks, auto repair shops, trash services… the list was actually fairly extensive.
Some of us found it curious that marijuana dispensaries were classified as ‘essential businesses’. (So were liquor stores.)
My friend continued:
“I personally found it hilarious that we were classified as ‘essential’… I could see why the liquor stores were essential, because if you had cut off the alcoholics, they were going to flood the hospitals.
“For the marijuana industry, the reason we were essential, was because they wanted people to stay home. And the best way to keep them home was to keep them stoned. And maybe they won’t question why we’re keeping them home.
“So we were one of the industries that stayed open. And people were staying home, because they had to. That helped our industry. And the fact that the government was printing all this money and handing it out; every three or four months, you get a $1,200 check…”
We shared, previously, the chart from the Colorado Department of Revenue, showing a spike in marijuana tax collections during the pandemic…
“All that was a ‘boom’, and now it’s sort of a ‘bust’. So the industry is going through a contraction. Makes sense. Everybody is trying to hang on, because everybody thought they were going to get rich. We’ll see how long they can. There are seven dispensaries in Pagosa? The town can probably support two of us?”
So the question comes up. How do you get out of the marijuana business, gracefully?
“My business partner, and all the people who work with me, that’s 25 employees. I can’t really just shut down. I’m personally 62. I’m done. I’m tired. I have really good employees, but it’s hard being an employer. I’d like to be out of it.
“Ideally, I’d love to just give the whole business to my employees, and have them pay me rent. But who would run the financial part? I just had seven bank accounts shut down. I have to find new bank accounts.
“There are marijuana banks, that will accept you as a customer, in this state. It’s $1,000 a month just to have a bank account. And they want a piece of your deposit. And in their defense, they have to defend where this money is coming from, and going to, to prove it’s not going to finance terrorists or drug cartels, etc. Because, to the feds, it’s illegal. It’s ‘laundering money’. So I’m sure, dealing with whomever they have to deal with — the FDIC, etc. — takes a lot of time. And a lot of lawyers.
“Imagine owning a Chinese restaurant, and you have to pay $12,000 a year to have a bank account.
“But I really can’t shut the business down, because I’ve got all these employees…”