In Denver, legal marijuana spurs entrepreneurialism and gentrification

Editor's note: Soapbox's parent organization, Issue Media Group, commissioned this feature story about entrepreneurs, developers and neighborhood activists clashing in a decidedly unique business startup scene: Denver's legal marijuana dispensaries. Startup owners are making money, city and state tax revenues are up, economic spin-offs are lifting a multitude of support businesses and older neighborhoods are changing quickly ... all while other states consider legalizing recreational pot use. Is Denver a case study for a wider urban boom that's about to explode?
________________________

Known for having more marijuana dispensaries than Starbucks since 2011, Denver has been the subject of countless national headlines — and late-night punchlines — since it became the site of the world's first legal sale of recreational marijuana on Jan. 1, 2014.

Hype aside, the economic upsides include significant job creation and increased tax revenues, to the tune of $44 million for the state of Colorado (on nearly $600 million in sales) and about $10 million more for Denver, a good bit of which will go into education. Legalization also lured a wave of entrepreneurs.

These entrepreneurs are growing marijuana, selling marijuana and making marijuana software. They're developing better ways to grow indoors and researching marijuana's medical efficacy and testing marijuana. They're creating marijuana-infused products — everything from cookies to sodas to bath salts to lotions — and innovative machinery to extract oil from marijuana plants to make such products.

Denver City Councilman Chris Nevitt's district encompasses the "Green Mile" stretch of South Broadway.

"During the Great Recession, two things saved our ass," he says. "One was the enormous investments the city was making in bond-funded projects. The other was marijuana."

Near-insolvent property owners had a new class of business as a market, and it kept many of them from defaulting on loans for retail and industrial space. "That can only be good for Denver," Nevitt says.

Not that there aren't any quibbles or complaints. The top post-legalization concern of residents was stoned driving, according to a Denver Post poll, but the effect on the overall crime rate is likewise at worst a wash, with Denver's murder rate and auto fatalities dropping notably in 2014.

Another concern is the impact on kids, but there's no definitive evidence that usage is up among those under the legal age of 21. There has been an observable uptick in homelessness and a higher rate of unemployment among twentysomethings.

Jobs taking root

Tim Cullen and Ralph Morgan own two marijuana dispensaries in Denver: Colorado Harvest Company and Evergreen Apothecary.

The latter store is located on the so-called Green Mile. There are about 20 recreational and medical dispensaries on this two-mile stretch south of Interstate 25, the highest concentration of legal marijuana shops on the planet. (A clause on that superlative: Cities like Amsterdam and Copenhagen have essentially decriminalized marijuana without expressly legalizing it.)

Cullen and Morgan recently commissioned University of Denver's Jack Strauss to do an economic impact study for their dispensaries, with nearly 50 employees and about $12 million in sales between them.

Strauss found that the combined economic impact of the two stores was seven times the average retail store or restaurant in the metro area for 2014. Tax revenue from just these two stores totaled $1.07 million for the state and $390,000 for the city — 10 times the average retail establishment or restaurant — and payroll was eight times the average.

Nevitt estimates that the industry created "tens of thousands" jobs for Denver when the city needed them most. "They are primary jobs — they take seeds and fertilizer and water and create marijuana — and we need that."

It's tough to pin an exact figure on the total number of jobs created. Colorado has licensed roughly 15,000 people to work in the industry, a number that rivals any other industry in the state. About 4,000 direct jobs have been created in Denver, and there's also an economic ripple effect that has buoyed construction, marketing and other industries.

And these jobs have decent wages. Pay for the "budtenders" who sell marijuana at the dispensaries starts at $10 an hour, and the Colorado Division of Labor and Employment pegs the industry average at about $600 per week. Many of the higher-paying jobs are at Denver startups that make edible marijuana products and vaporizers.

Case in point: Cullen and Morgan are also the founders of O.penVAPE, an operation that makes cannabis-oil vaporizers that allow users to inhale marijuana's active ingredients without the smoke. "It's just gone ballistic," Cullen says of the company, which has grown from six to 100 employees in the last three years and expanded the brand to nine states.

Nevitt highlights this kind of "ancillary intellectual property" from local companies as another economic driver. Local companies are making better child-proof packaging, making better equipment to extract oils from cannabis for use in edible and other products, researching the medical efficacy of dozens of cannabinoids and otherwise innovating.

"That's where Colorado is really going to come out ahead," he says.
Tripp Keber, CEO of Dixie Elixirs & Edibles
Dixie Elixirs & Edibles grew by 500 percent in 2014 and doubled its staff to 50 employees and consultants. Dixie built a new $4 million, 30,000-square-foot facility in Denver last year that CEO Tripp Keber calls "one of the industry's most state-of-the-art extraction facilities," complete with an exhibit hall and R&D lab.

"All of that IP (intellectual property) — the packaging, the extraction, the dosing platforms — everybody is looking to us," says Keber, calling Denver "the incubator" for states that will legalize marijuana in the future.

As Nevitt puts it, "When everybody is digging for gold, it's great to be in the pick-and-shovel business."

Lessons and challenges

The market for marijuana service providers includes 23 states that have legalized medical marijuana, along with Washington, Oregon and Alaska, the three other states that have legalized recreational marijuana.

In both Washington and Oregon, the state liquor boards are in charge of establishing a system for the cultivation and sale of marijuana. Colorado's policy is much more hands-off.

"We have really led the way for not just the country but the entire world by embracing a for-profit business model for marijuana," Nevitt says. "I think that's been absolutely key for our success. We've said, 'This is a business, we need to regulate it like a business.' That has been spectacularly successful."

He points to the tax revenue and jobs as proof.

Nevitt argues that nonprofit co-ops and home-growing caregivers, holdovers from Amendment 20 that legalized medical marijuana in Colorado in 2000, feed the black market. He says the new policies that came with Amendment 64, approved by voters in 2012, established a better model.

"The for-profit model is totally transparent and totally accountable," Nevitt says.

Every plant is tracked from seed to sale, he explains, so it's difficult for the industry to supply the black market.

There are other checks and balances: Cities and counties are able to enact temporary or permanent bans on recreational marijuana. Nevitt says this kind of local control is another essential ingredient.

In Denver, areas like the Green Mile opened when city rules didn't limit how close the stores could be to each other — meaning dispensaries are as dense as they'll ever be. New marijuana shops in Denver can't open within 1,000 feet of each other (or schools or drug treatment facilities), thanks to city regulations formulated in 2013.

There's also been concern about the flip side of the job creation: Are companies less likely to relocate or hire in Denver because of legal pot? There's not a broad consensus, with some executives reporting little or no impact and others painting it as a deal breaker. But the city's string of economic development wins since marijuana prohibition ended — Layer3 TV, WorldRemit and Panasonic Enterprise Solutions — suggest it's not exactly a be-all end-all.

"Employers can still maintain drug-free workplaces, so it's pretty much business as usual," says Laura Giocomo, director of communications and marketing at the Denver Metro Chamber of Commerce.

The biggest roadblock for the industry is banking, or lack thereof. Most banks want nothing to do with dispensaries and other marijuana businesses, so the buildings must be landlord-owned or else the dispensary has to buy it outright. That in turn makes real estate pretty hard to find, says Cullen. In response, he's started Harvest Consulting Group to help startups navigate the fledgling industry.

The only bank that will do business with Cullen's businesses is 60 miles south of Denver in Pueblo.
Tim Cullen and Ralph Morgan own two marijuana dispensaries in Denver
"We have banking, but it's expensive," he says, adding that the large amounts of cash require an armed guard and an armored truck. "It costs me $1,000 to make a deposit."

State officials and entrepreneurs are working to develop remedies to the industry's lack of banking, a problem for dispensaries and regulators alike.

Taxes are also thorny due to Section 280 E of the IRS code. It says that no deductions may be taken for federally illegal activities, so marijuana businesses typically don't deduct any business expenses on labor costs, real estate and marketing and advertising.

Marijuana gentrification on the Green Mile

In November 2014, a meeting on the Green Mile stretch of South Broadway aimed to unify all of the retailers in the name of marketing, but for a place called Grandma's House the atmosphere was a little tenser than one might expect. The antique store turned collaborative brewery drew a big crowd, including reporters from all of the local TV affiliates and newspapers.

On one side of the room were the antique merchants and other members of the South Broadway Antique Row Association. Across from them were the founders of the proposed Green Mile on Broadway Association, a group backed largely by the many marijuana dispensaries that line Broadway before it plunges into suburban Englewood.

Proponents of the Green Mile group said they want to create an inclusive membership organization to market the area, but the conversation got contentious. Many of the antique dealers want nothing to do with the pot shops, and others argue the Green Mile moniker excludes them.

After the meeting, an onlooker described the affair as "us versus them." And one side seems to have a decided advantage, she adds. "It's the Green Mile and the Antique 500 Yards."

There's also a pretty big fiscal gulf between the two sides. The Antique Row organization has been around since the late 1980s and operates on an annual budget of about $6,500. Dues are $175 a year. For the Green Mile, Cullen says dispensaries could have dues of $2,000 a month, with a target annual budget of $200,000 or more.

As the first medical marijuana dispensaries opened on South Broadway in 2008, the street was riddled with potholes and the sidewalk was cracked or worse. Denver Public Works embarked on a $28 million street project that was completed in 2013.

The project coincided with the birth of the Green Mile. One medical marijuana dispensary snowballed to more than 20 by 2012.

Developer Jon Cook owns numerous storefronts on South Broadway, including several currently leased to dispensaries. He says rents on South Broadway have increased by 25 percent since the road project's completion.

"In '08, there were a lot of vacancies," he says. "Now it's blue skies and smooth sailing."

But not for everyone. Many antique dealers have had trouble keeping up with rising rents, and several have closed. As antique shops move out, breweries, galleries and boutiques have moved in alongside the dispensaries. Several restaurants are in the works.

With all of the change, the area's reputation is starting to snowball. It's not at all uncommon to see tourists taking selfies in front of the dispensaries. With the higher profile comes a call for unified branding, leading locals to suggest all sorts of potential names: Gates, BISON, The Row and of course the controversial Green Mile.

One of the leaders behind the proposed Green Mile on Broadway Association, Cullen says the name isn't as important as unity.

"Haight-Ashbury is not cool because it's called Haight-Ashbury," he says. "What matters is a collective effort to market the area."

While not exactly the "collective effort" he was describing, the Green Mile/Antique Row clash at Grandma's House at least started a conversation about the area's future, and it generated oodles of free publicity to boot.

"It ran as an international story," says Cullen. "I've been on The Today Show twice."

Beyond the hoopla, the Green Mile and Antique Row are really just different names for the same quickly changing place. That place is a crucible and — with six states likely voting on legal recreational marijuana in November 2016 — also a case study for city builders from Las Vegas to Boston.

Denver's big, green experiment might just go mainstream.

Eric Peterson is a Denver-based writer and editor specializing in technology and travel. He writes about tech startups for Confluence Denver, Soapbox's sister publication, while authoring dozens of guidebooks for Frommer's Travel Guides. Contact him here.