Colorado Pot Businesses: We’re Going to Run Out of Weed

By

Published December 12, 2013

| FOXBusiness

On New Year’s Day, some Colorado marijuana dispensaries are set to become the first in the nation to legally sell weed for recreational use.

But it hasn’t been a ride on Easy Street. In addition to trying to clear the hoop maze of local and state licensing issues in time for Jan. 1, local potpreneurs in the Centennial State say a cannabis shortage could strike within a week’s time after opening for business.

Medical marijuana was legalized in Colorado in 2010, and The Denver Post reported earlier this year that there are just under 700 medical marijuana dispensaries in the state, which require customers to have a red card, given to them by a physician, in order to purchase weed. According to the Associated Press, only 160 of those stores have applied to sell recreational pot, which they can only sell to adults over 21 during mandated hours of business. (Which means there will be no late-night stops at the pot shop.)

Those working to comply with regulations and open for recreational sales in 2014 say demand is going to quickly outstrip supply.

“We are definitely going to run out of cannabis. The question is when,” says Denver’s Discreet Dispensary owner Toni Fox, who expects to be cleared to open on Jan. 1 and estimates her shelves will be cleaned out by Jan. 6.

Since Amendment 64 was passed in Nov. 2012, legalizing recreational sales in the state, Fox says she’s had to turn away at least 30 Colorado residents and visitors a day who were eager to purchase her Denver-grown weed.

Fox estimates she’ll sell to at least 100 customers a day in the New Year.

“We’re anticipating $300,000 in revenue in January,” says Fox.

Drawing Up the Rules

While Washington has also legalized recreational marijuana sales, Colorado will be the first state to actually open up shops, with Washington set to begin sales later in 2014. As a result, Colorado legislators say they’re figuring out the rules as they go.

“We’re public servants, not perfect servants, so I’m sure there are some mistakes that will need to be corrected,” says Denver City Councilman Charlie Brown, who had opposed legalization of recreational marijuana because of concerns over the state’s image. Some groups in favor of legalizing weed, like the Marijuana Policy Project, which spearheaded the campaign for Amendment 64, say some of the rules and regulations for dispensary owners may be overkill.

“I think more problems are caused by elected officials and regulators overdoing it, than by the actual businesses and products,” says the Marijuana Policy Project’s Mason Tvert. In particular, rules regarding surveillance cameras, inventory tracking and packaging are seen by some dispensary owners as challenging, says Tvert, who nonetheless says the rollout has been on the whole successful. There will be a 25% sales tax on all recreational marijuana sales, which he says is expected to raise roughly $70 million -- $40 million of which will benefit the public schools system.

But because of the approval process necessary to get a recreational license in the state, only a handful of dispensaries actually expect to be able to open for business on Jan. 1.

“Only about eight to ten will be open due to regulations and inspections and all this stuff,” says Brown.

Putting Pressure on Growth

Fox says she’s been looking forward to selling recreational weed since she first opened her shop in 2010.

“I need to make $1,200 a day to cover my overhead, and I only make $900 to $1,000,” says Fox, who adds that Denver’s Discreet Dispensary has been consistently in the red since its launch. With only about 100,000 residents approved to purchase medical marijuana, according to Tvert, and a growing number of dispensaries, Fox says the price of cannabis has gone down, making it harder and harder to turn a profit.

Now, there’s a light at the end of the tunnel, says Fox, as she plans to welcome new customers into her store.

“I have six employees, and I’m looking at tripling by the second week of January depending on volume,” says Fox. “My main focus for the past three years has been ‘Grow more cannabis.’ It’s my mantra.”

Also in Denver, Natural Remedies owner Andrew Boyens says he expects to see sales grow by 200% to 300% this year. 

“Since it’s been passed, people have been trying to walk in and are calling, emailing … there’s tons and tons of interest,” says Boyens. He says his business has been profitable over the past four years, but he’s been continuously re-investing in Natural Remedies.

“My guess is I’ll add between five and ten employees over the next six months, to staff the store within a store, and now two warehouses,” says Boyens, who says this will be the last expansion of the business.

Both Fox and Boyens say they haven’t found the regulations or proposed taxes too worrisome.

“The regulations are challenging, but doable,” says Fox. “I applaud what the state has done.”

If anything, Boyens says dotting every “I” and crossing every “t” makes him feel secure in his business plan.

“To be honest, I’ve found solace in it … to have something written down to tell me how to properly open these things,” says Boyens. “We’ve kept everything very transparent to the point of overkill, to ensure that if we ever do go into an audit … we’re ready.”

URL

http://smallbusiness.foxbusiness.com/entrepreneurs/2013/12/12/colorado-pot-businesses-were-going-to-run-out-weed/