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San Luis Valley feels impact of downturn in marijuana industry

BusinessSan Luis Valley feels impact of downturn in marijuana industry

Marijuana sales in Colorado have been declining this year, and sales of THC products in the San Luis Valley are no exception.

During the first eight months of this year, Saguache County experienced a 19% drop in retail marijuana sales tax collected—$377,150 compared with $465,342 collected for the same period a year ago, according to data from the Colorado Department of Revenue.

On the southern end of the San Luis Valley at the border with New Mexico, Costilla County recorded a 34% decline in retail marijuana sales tax—$438,256 in the first eight months of 2022, compared with $663,482 during the same period in 2021.

It’s been a tough year for Colorado’s marijuana industry overall, particularly striking on the heels of record sales of $2.2 billion statewide in 2021. Marijuana flower (or ‘bud,’ the smokeable part of the plant) is fetching $658 per pound, on average, based on transactions from June 1-August 31, 2022, according to state revenue department data. That’s half of the $1,316 a pound average during the same period a year ago.

Retail sales statewide were down more than 20% through July of this year from the same period of 2021.

“Our industry is going through layoffs for the first time,” said Truman Bradley, head of the Marijuana Industry Group, a trade group based in Colorado. “Some companies are going through multiple rounds of layoffs. Those are good, hard-working people losing their jobs.”

People in the industry in the Valley provided various explanations for the downturn, including the opening of retail marijuana dispensaries this year in neighboring New Mexico, too much supply in the system, too much competition on prices, insufficient moratoriums on the number of dispensaries that can open in a region or municipality, and the maturation of the industry in the state that was the first in the nation to open a recreational marijuana market.

No matter the reason, they agreed the lower sales likely mean pain in the near term for marijuana-related companies, employees, and the state programs which rely on the revenue generated from marijuana taxes and fees.

Conejos County, also on the border with New Mexico, recorded a 30% decline in marijuana sales tax collected in the first few months of 2022 compared with the same period last year, according to the state revenue department. That number could get worse, as dispensaries in New Mexico began selling recreational marijuana for the first time on April 1 of this year. In July alone, marijuana retail sales tax collected in Conejos Country fell 59% to $69,642, compared with $169,791 collected in July 2021.

As for the other counties in the Valley, Alamosa County’s medical marijuana taxes aren’t published by the state, for confidentiality reasons, and Mineral and Rio Grande counties aren’t listed in Colorado Department of Revenue data. These counties do not permit the sale of recreational cannabis.

Although dispensary owners are typically tight-lipped about their finances, it’s a given that sales on the state’s southern border have dropped, Bradley said. “I guarantee you their sales are down. We used to get a lot of marijuana tourism from bordering states,” he said. “But now that Arizona and New Mexico have legalized, anyone on the southern border of Colorado is seeing a decline in sales.”

“We’re definitely slower than last year,” said Sabra (who asked that her last name not be used), inventory control manager for Dispensary 7884 in Antonito in Conejos Country. “But actually, we’ve had a lot of our New Mexico people come back to us because we’re less expensive.”

Diane Dunlap, owner of two grow operations in Saguache County and three dispensaries in the Valley, has also experienced lower sales at the border.

“My Antonito shop [High Valley Retail Cannabis] is five miles from the New Mexico border. Antonito sales are down since New Mexico opened [for sale of THC],” Dunlap said, also noting that sales have picked up since gas prices have started to come down. “It was a perfect storm last spring with New Mexico opening and gas prices being atrocious. As gas prices go down, people in New Mexico are willing to drive back into southern Colorado for better bud at better prices. Most of the bud coming out of New Mexico is prepackaged grams. Those are going to dry out real fast.” And the THC level in those products is probably lower, she noted.

Dunlap said neither her High Valley Retail Cannabis store on the corner of T Road and Highway 17 in Moffat nor her High Valley medical dispensary in Alamosa have been affected much by the downturn. “What that tells me is that I have tremendous local customers.”

On the other side of T Road, in Moffat, One-Eleven dispensary’s sales are “definitely lower,” said Max Middleton, general manager. “We’re following the same trends as the entire state. It’s unfortunate, for sure.”

Middleton said the prices for a pound of marijuana flower are the lowest he’s seen in the seven years he’s worked in the industry. But he’s optimistic things will turn around, probably later next year and into 2024 and 2025.

“People are swimming at the bottom of the barrel [in terms of product price] in the Colorado market as a whole,” said Middleton. “The market here is mature; it has ups and downs, just like tech markets, housing markets or crypto. We’re just in one of those low points.”

Mike Biggio, co-owner of the Area 420 Project just outside Moffat, isn’t too concerned about low prices because he’s based his sales projections on marijuana flower at $500 per pound.

“Prices are down and it’s tough times for a lot of people,” Biggio said. “But in a strange way, we’re in a unique position to take advantage of that because our cost of production is a fraction of what it is in Denver.”

Since the excise tax on marijuana cultivation is lower in Moffat than most other local markets, said Biggio, his collective of growers can produce cheaply and efficiently, and, he notes, growing marijuana outside is less expensive than growing indoors.

But Bradley of the Marijuana Industry Group is still concerned. He said not only are retail marijuana sales down, but medical marijuana sales are down 45% from a year ago. “That’s a scary number. State lawmakers should be worried. Last year, the state collected $423 million in marijuana taxes and fees. Take 20% of that, and that’s $84 million gone from the state budget.”

Some of the biggest beneficiaries of marijuana tax and fee collections are schools. The Colorado Department of Education’s Division of Public School Construction Assistance administers a capital construction grant program known as Building Excellent Schools Today (BEST). The BEST program focuses on helping public schools with capital construction needs, from new roofs to major renovations and new schools, according to the Colorado School Finance Project website. From one-quarter to one-third of BEST’s funding annually comes from marijuana taxes, Bradley said.

Schools in the region have benefited from BEST grants. Mountain Valley School in Saguache was awarded a $27 million BEST grant in 2017 to build the new pre-kindergarten, K-12 school there, which opened in the fall of 2019. Also in 2017, Del Norte was awarded $27 million to build a new K-12 school. In 2014, Moffat received $12 million for a new K-12 school, and the South Conejos School District was granted $12 million for a new K-12 school. Each of the projects required partial local funding.

Marijuana tax revenue comes from the 2.9% state sales tax on marijuana sold in stores, the 15% state retail marijuana sales tax on retail marijuana sold in stores, and the 15% state retail marijuana excise tax on wholesale sales/transfers of retail marijuana, according to the state revenue department. Fee revenue comes from marijuana license and application fees.

“That’s what legislators need to be thinking about,” Bradley said. “For the first time ever [since marijuana was legalized in Colorado], they’re going to have less money than they had the year before. Is the industry going under? No. But there is a new normal we need to be cognizant of.”

Dunlap, owner of the High Valley dispensaries, doesn’t necessarily agree that low sales and prices are the “new normal” because the industry continues to evolve.

“Just when you get your ducks in line, they move the pond,” she said. “That’s the perfect statement for cannabis in Colorado. It’s always changing.”

Heather Draper
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