We ended part one with a chart based on numbers from the Colorado Department of Revenue… the amount of taxes collected by our state government since the sale of recreational cannabis was approved by Colorado voters in 2012.
There are a couple of way to interpret this chart. Either the COVID crisis, for some reason, caused marijuana sales to jump during 2020-2022, followe3d by a decline in sales — which is perfectly possible — or else the recent legalization of medical or recreational marijuana in the states surrounding Colorado has led to less “marijuana tourism'” and the Colorado cannabis industry is looking at negative growth in the future.
There may be other explanations.
Understanding that this is a fledgling industry in Colorado, only about 10 year old, it’s hard to predict where it’s headed.
I sat down with the owner of a Pagosa marijuana dispensary a few weeks ago, to chat about how he views the industry in 2023. I asked him to give a little background on how he got started.
“I was trying to figure out how to make it, here in Pagosa. I come from the M&A world; Mergers and Acquisitions. One of the plays that private equity was doing was going aroudn to all of the cities that they knew were about to go legal, and buying distressed warehouses. Distressed properties. Because they realized that these cities would try to push the marijuana grows to these areas that needed to be revitalized. Warehouses, etc.
“So they would buy a warehouse, and do a ‘rent-to-own’ type model, where they would outfit the warehouse with grow lights, etc. Basically, set up a grow facility, and then when the gold rush hits, when it went legal, everybody was trying to get into the business. But the people trying to get into the business had no money, so they would pay these exorbitant rents to get a place, with the idea that sooner or later they would own it — they would take their profits and invest and own it.
“If the new business didn’t succeed, the investors still owned the warehouse, and they could rent it off to the next guy.”
I asked who these investors are. (I actually used the word, ‘bastards’.)
“Bankers. It’s capitalism.
“And the beauty of the model is, you’re not actually in the business yourself, so you don’t have the draconian federal laws that say, ‘Oh, we can tax you and take your money, but you can’t use our banking system, because you’re illegal. And not only is that going to be a handcuffs, but all the expenses that a business can normally deduct? You can’t deduct them either.’
“So you are basically at a 70% tax rate…”
A bit of clarification.
Many state laws have legalized cannabis dispensaries that supply recreational or medical marijuana. But federal law still classifies marijuana as a Schedule I controlled substance.
Meanwhile, the federal Treasury Department regulates the banking system, and banks typically worry about violating federal money laundering laws. Financial institutions risk charges of “aiding and abetting a federal crime” if they bank with a marijuana-related business.
Most financial service providers have decided that the risk of doing business with the marijuana industry is not worth it.
As any small business owner knows, banks offer lending opportunities that help businesses grow. They also provide basic operating necessities such as payroll, checking, and credit accounts. Without bank accounts, marijuana dispensaries must conduct most of their business exclusively in cash.
It’s a problem.
My friend continued:
“So, fast forward. Here in Pagosa, I saw an opportunity. I was a guy who provided the picks and axes to the marijuana industry, as a tax consultant — rather than actually doing the selling. But I saw an opportunity down here. At first, the Town Council was dead-set against marijuana dispensaries. They were very conservative. It took Bill Delaney to be the pioneer, to get the County government to accept it. I think he had Crohn’s Disease, and he convinced the commissioners that marijuana had really helped him, and he wanted to benefit the community. So the County allowed his medical dispensary, and he basically had a monopoly for three or four years…
“Then when the Town saw what the County was collecting in taxes, they had a ‘Come to Jesus’ moment, and they said, ‘That’s not fair! We’re for it, too!’ And they set out areas of town where they would allow it to happen. Which is why the dispensaries are bunched up in certain areas… ”
A brief clarification.
The Town Council, at the time, didn’t want any marijuana dispensaries close to schools, parks, or churches. So they basically allowed dispensaries at the far east end of town, and to the west of the elementary school on 10th Street.
We will note that a ‘dispensary’ is not a place where people use, or abuse, marijuana. It’s basically a retail store, like a pharmacy, where certain products are sold. The products are typically packaged in a little white bag, similar to the little white bags you might get at a pharmacy (when you are buying your opioid prescription?)
But the Town Council didn’t want children, or churchgoers, to suffer the pain of even looking at a dispensary.
A pharmacy, that sells much more dangerous drugs that marijuana? Not a problem; those can be located on Main Street.
My friend continued:
“We found a building and started refurbishing the place.
“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…”