Does Colorado’s Dispensary Market Have a Limit?

CANNABIS CULTURE – The short answer is no, BUT depending on where you are in Colorado, you likely have a different opinion about that amount of dispensaries the state can handle.

From 2000 to 2014, the state saw gains in its medicinal marijuana dispensary growth. By 2009, areas of the state began to wonder if dispensaries would saturate the market. Today, a similar question is being asked. That is, depending on where you are in Colorado. When walking around Denver, it quickly becomes clear exactly how easy it is to purchase cannabis products from a dispensary on virtually every street.

As of this month, Colorado had 400 cannabis stores and 505 medicinal centers in operation. Between 2014 and 2017, retailers and dispensaries helped the state generate an eye-opening $2 billion. Meanwhile, this past March saw sales records bested once again as the state made $131 million in sales that month.

Despite this incredible sum, the discussion of oversaturation has been on the mind for some time. A 2014 moratorium has kept Denver’s growth limited to some degree. With an extension in 2016, the city is an example of capping market saturation. Meanwhile, other areas of the state continue to push for an initial presence in their communities.

When asking about dispensary oversaturation in the state, the answer is clear — until it varies. With the case for both sides holding credibility, dispensary saturation is much like beauty. It’s in the eye of the beholder, and stats.

The Case for Oversaturation

“The boom of dispensary’s in Denver five years ago was insane,” explains James Harper, co-founder of Denver-based CBD company WeThinkHealth. “Personally, I believe it really helped our local economies and surrounding, non-cannabis small businesses.” Harper went on to note how that Denver found itself in a troubling situation before the Green Rush. “We weren’t big enough to attract companies that might want to be based out of a big sized city like Chicago, and we were a little too big for job seekers and companies coming from small-mid markets like Boise and Minnesota.”

Harper, like many others in the area, believe that marijuana helped jump Denver’s notoriety in the country. That positive sentiment only runs so far, however. Today, however, it’s virtually impossible to not find a dispensary in Denver. “The market here is now over-saturated,” Harper adds. One of the more notable stats that supports Harper’s claim is a 2015 report that found dispensaries dwarfing the amount of McDonald’s and Starbucks in Colorado. “Due to the major cannabis boom, our local economy is in its biggest inflation bubble ever.” There is no argument that the city’s house price index has certainly bubbled. As of August 2017, Denver’s housing index stood 43% above its peak from August 2006.

Housing prices aren’t the only thing to spike. “Since [legalization], it’s been major expansion and consolidation for the big retailers while smaller, boutique shops are scattered throughout the state,” said PurePressure Rosin‘s Eric Vlosky. This past June revealed that one-third of the state’s dispensaries resided in the capital — making market penetration for any new dispensary a sizable task. Additionally, the mom and pop shops mentioned by Vlosky face the threat of chain dispensaries. Throughout Colorado, six companies own 70 locations in the state. They include:

  1. Native Roots (19 locations)
  2. LivWell (14)
  3. The Green Solution (12)
  4. Sweet Leaf (10)
  5. Green Dragon (10)
  6. Strainwise (9)

And neighborhoods are taking notice of businesses of any size moving in too much. Last year saw the first time that a dispensary lost its license to operate. Starbuds of Denver’s Elyria-Swansea neighborhood earned the unwanted distinction of that state’s first-ever denial of a routine cultivation license renewal. The denial cited the location’s odor and the dispensary-dense neighborhood’s plans for the working-class area. With the dispensary sitting in a prime area for a city overhaul, Starbuds received substantial criticism from locals.

The issues cited against Starbuds is another criticism the burgeoning industry faced since legalization. Topics like a rise in homeless populations have entered the conversation over the years as well. “The older ones are coming for medical [marijuana], the younger ones are coming just because it’s legal,” Brett Van Sickle, director of Denver’s Salvation Army Crossroads Shelter told CBS News in 2014. He added that he doubled staff to accommodate the increase.

With chains and local complaints in the conversation, the discussion around oversaturation appears to veer off the subject of presence and more into other complaints. From odor to chains to the homeless population, Colorado has issues with dispensaries worth discussing. However, revenue growth and sections of the state still underserved leave the other side of the argument believing that there’s more room to grow.

 The Case for Undersaturation

While Colorado’s major cities and some communities appear well-stocked with dispensaries, other areas remain underserved or completely out of the recreational industry. This leaves nearby smaller cities as the only option.  The second largest city in the state, Colorado Springs, remains one of the few to ban recreational marijuana sales. That leaves smaller nearby cities like Manitou Springs as the only local option for the area. Others small town sellers include Log Lane Village who serves the Fort Morgan community despite the latter being 10 times larger than its dispensary destination. Furthermore, the less than one square mile town of Garden City is the local retailer for the 96,000 resident town of Greeley.

For Colorado Springs, a tax crisis may lead to legalizing recreational sales. As the city faces a severe spending situation to offset an annual $20 million to manage stormwater flows downstream. The situation has grown to such an issue that the city is weighing legalization or reinstating unpopular fees upon its residents.

Marijuana advocates are using the predicament to push for recreational sales in the city. They believe that the town’s leaders hinder Colorado Spring’s ability to profit from recreational sales like much of the state has done. Mike Elliott, who runs Citizens for Safer Neighborhoods, a pro-marijuana group funded by the medical marijuana industry, told Colorado Public Radio that, “the community is really just putting criminals in charge.”

Recreational advocates contend that legalized sales cut off the black market. In turn, the city reaps the additional revenue. In the case of Colorado Springs, that would mean improved maintenance of its parks and updating city vehicles.

Others point to limits imposed by the state through the 2014 moratorium. Joel Milton, CEO of Baker, believes that the moratorium created an “artificial ceiling.” This capped potential growth across Colorado. Milton added that Colorado has two times more liquor stores than dispensaries. “So saturation is relative.”

Today, market saturation of certain segments is only now becoming a growing trend. Milton points to the rise in elderly users. “For instance, chronic pain is a top ailment in the U.S. and it has been proven that it can be treated with adult use cannabis. So while it may be the case that the primary use-case of cannabis is recreational, we’re seeing increasing trends of many, especially older, Coloradans finding cannabis to be a much better alternative.”

Room to Grow

There is no clear cut answer to saturation in Colorado. Depending on the data selected and the questions asked, one can arrive at many answers. Certain areas like Denver could make a case for heavy to oversaturation. The same could be said for chains across Colorado making it difficult for independent dispensaries to survive. However, with large swaths of the state underserved, many proponents contend that the market could grow much more.

If moratoriums fall, Milton believes growth could take up in new areas like Colorado’s most populous county, El Paso. Others like Eric Vlosky agree. He told Cannabis Culture that he was unsure how or when the market would oversaturate. “Total cannabis sales growth in Colorado has continued to climb year-over-year since 2014 and shows no signs that this trend will reverse anytime soon.”

Meanwhile, others are using potential oversaturation as part of their business strategy. James Harper and WeThinkHealth saw oversaturation in the products at dispensaries as well. Instead of competing for highly coveted display case space, WeThinkHealth targeted a different segment of the market. By focusing on health-centric users, they’ve found a place in the market. “People like the fact we’re not really the typical branded “dispensary product” like every other CBD company out here,” Harper explains. “We really speak to the people that are still intimidated by the dispensary stigma but want the benefits of cannabis.”

Over the coming years, Colorado will continue to serve as an interesting case study in marijuana economics and policy. Under the subject of saturation lies several topics that local and state officials will need to address. Some already have come up for public discussion while others remain just in data. As Milton noted, today in Colorado saturation is indeed relative.