Cannabis revenue has grown consistently since legal sales started in Colorado. Dispensaries broke records month after month early on in the pandemic, and industry figures believed at the time that business was unlikely to slow down. But for nearly a year, sales have done just that, raising questions about the future of Colorado cannabis.
"I saw the writing on the walls back in October last year," said Francisco Chavez, who does business-to-business sales between growers and dispensaries in metro Denver. Historically, the cannabis industry has experienced a slowdown after summer ends, but Chavez said last fall felt "very odd."
"Since I'm all around, I'm selling to so many different shops, [my customers] were coming to me and asking 'Hey, what's the word? Do you know if other shops are struggling like us?'" Chavez recalled. "A lot of shops and a lot of purchasing managers, executives at dispensaries or owners, they wanted to know how it is out there on the other side for other dispensaries."
Chavez said it was unanimous across town -- sales had slumped.
Between the months of June, July and August for 2021, the state brought in more than $109 million in total taxes and fees for marijuana. But during those same months this year, that total was around $80 million. That reflects a 26 percent decrease from last year's summer months, according to data from the Colorado Department of Revenue.
People who work in the cannabis world say the sales dip could be due to a number of factors. They point to things like stricter laws, inflation, an oversaturated market finally leveling out, and fading enthusiasm around a once-niche product.
Truman Bradley, executive director for the Wheat Ridge-based Marijuana Industry Group, called Colorado's situation a "perfect storm."
Bradley pointed to a law that went into effect at the start of the year as a big reason for the drop in revenue. House Bill 1317 put new caps on how much THC concentrate medical cannabis card holders are allowed to purchase each day. Customers can now buy up to 8 grams, down from the previous limit of 40 grams.
The law also lets the state track purchases to prevent people from going to different stores and buying more than the legal limit. It also makes it tougher for 18- to 20-year-olds to qualify for a medical marijuana card, requiring them to visit a physician in person and get written consent from two doctors who work at two different practices.
"Some patients need to go to a dispensary now every two or three days in order to get the medicine that they need," Bradley said. "Imagine if you had to do that for medicine that you need, oftentimes, driving long distances, waiting in lines."
Another aspect that may be driving sales down, especially for the medical side of the industry, is patients' inability to receive medical cannabis through telehealth visits. Colorado waived those restrictions at the start of the pandemic through an executive order issued by Gov. Jared Polis, but that window expired in July.
Medical cannabis sales alone brought in more than $442 million in 2020. But those sales dropped to $404 million in 2021, and so far this year, they are down again.
The Marijuana Industry Group is also concerned about the impact of potential new tax plans, like the failed My Spark Denver effort. The initiative would have used a 4.5 percent sales tax on cannabis products and a portion of the existing tax on cannabis to fund out-of-school programs. Denver voters rejected a similar proposal last year.
"This is the second time in as many years that campaigns viewing the cannabis industry as a piggy bank for personal projects have lost," said a statement from Tiffany Goldman, board chair with the Marijuana Industry Group. "Denver voters know this industry is too important to be a target moving forward."
But additional regulations and taxes are only part of what's driving spending down.
Neighboring states like New Mexico have legalized and further normalized cannabis consumption. That has slowed out-of-state cannabis tourism, especially in Southern Colorado, according to Jon Spadafora, president of Veritas Fine Cannabis. The company operates 300 dispensaries around Colorado.
"I don't think that any of us were prepared for how fast that would affect us," Spadafora said. "I think the biggest thing that's really driving the uncertainty around [the industry] is that, beyond the supply issues, this economy is tough. People are paying five bucks per gallon of gas, and they're being more cognizant with the money that they spend."
That lack of spending forced Veritas to close one of its grow facilities, lay off 33 of its workers and cut pay for executives earlier this summer. Spadafora hopes things bounce back, but he isn't optimistic that will happen anytime soon.
"It doesn't appear that the economic picture for the world is getting any better today than it was a few weeks ago," he said. "When the rest of the world gets the stuff figured out and we've got the inflation under control and people feel comfortable with their money, then I think we'll see growth again. But I don't think we're gonna see significant growth until that point."
It's unclear how much inflation has directly impacted cannabis buyers.
Jesse Payne of Denver said he earns $16 dollars an hour, relies on food stamps for his groceries and only has a little cash leftover each month. When asked whether he's had to cut back on purchasing cannabis, Payne laughed and said, "No, I can't."
"That's what keeps me focused. That's what helps me get centered in the morning," he added. "And then I can relax and get my head together."
Payne said he's shopped around for dispensary deals to try to keep his spending down. He doesn't take issue with the city's taxes on cannabis because he believes they are benefiting Denver. He credits the marijuana industry with contributing to the development and growth the city has seen in recent years.
Fellow customer Joseph Velasquez doesn't see as much value in the high tax rates. He works at a dispensary and said if taxes continue to rise, he thinks people will turn to the black market instead.
Both Payne and Velasquez said cannabis is a form of medicine that they'll continue to purchase despite inflation.
"I had a few wrist surgeries and knee surgeries. I use topicals, orals, like edibles," Velasquez said. "It's just a daily routine for me honestly."
Where does Colorado's cannabis industry go from here?
A handful of state programs are directly funded by tax revenue from the industry, which means slowing sales could lead to a funding shortfall.
Andy Stine directs Capital Construction for the Colorado Department of Education, which manages the Building Excellent Schools Today program. BEST awards grants that help pay for things like new roofs, boilers, HVAC systems and other renovations in public schools.
During the last fiscal year, BEST brought in $97 million from cannabis funds, Stine said.
"It's pretty nice," he said, adding that he has seen excess taxes fluctuate over the years because of new laws or budget cuts. But he warned the decline in cannabis revenue might impact these grants in the next fiscal year.
"It will squeeze the amount of grants that we can award every year," Stine said. He's hoping other sources of funding, like the State Land Board or the Colorado Lottery, balance the money out as it has in past years.
"When fee or tax revenue falls, programs supported by those funds need to be cut and reduced to fit the new budget," a spokesperson for Gov. Jared Polis' office said in an email. They did not go into detail about how the state plans to make such adjustments.
Local government programs funded by cannabis taxes may be impacted more severely than ones funded by the state.
"Denver marijuana tax revenue is down," said Bradley, the industry expert. "That means deep cuts for programs that Denver uses the marijuana tax money for such as affordable housing, homelessness services all while Denver's going through a housing crisis. So, you know, the impacts of inflation cannot be overstated on our industry."
Chavez, the businessman, said he's heard a lot of fear coming from colleagues. He has also seen many businesses undercutting each other for competitive pricing. But he remains optimistic.
"I've done my best to just try to make sure that I'm working with as many people as possible and just trying to just work as hard as possible," he said. "It's still slower than anybody would like it to be, but people are anticipating this great shakeout and in this great shakeout, folks are gonna go out of business and the market is gonna even itself out. That's gonna be true to a point."
Whether it's the economy, future legislation, or excitement moving to other issues, the cannabis world has several unknowns that only time will shake out. But its legitimacy and customers remain consistent.
