By Chris Walsh
It’s hard to overstate the significance of Jan. 1, 2014, when recreational cannabis sales begin in Colorado.
For the first time in US history, state-licensed businesses will sell marijuana to adults 21 and over, launching an industry that could surpass $1 billion in no time. But it won’t be smooth sailing.
The nation’s first retail shops – as well as other businesses targeting the adult-use market – face plenty of challenges as they compete in a brand new market.
With this in mind, here are seven business issues we’ll be paying particularly close attention to over the next few weeks:
#1. Demand: Will there be huge lines outside retail shops when retail marijuana sales begin? Will an influx of tourists invade Colorado specifically to get high? Will soccer moms and middle-class professionals who haven’t smoked since college start consuming cannabis again now that it is legal and more socially acceptable?
Demand estimates are all over the board, with some predicting 100,000-200,000 customers the first year and others estimating half a million or more. Regardless of where it ends up, the level of demand in the first few weeks will give us an idea of the market’s true size and the industry’s overall potential.
#2. Inventory: Inventory could become a huge issue for this fledgling industry, but it will all depend on what kind of demand materializes. If a large number of people seek out recreational marijuana, some shops could run out of product entirely and be forced to close temporarily, while others might sell out of popular strains. Given short-term cultivation restrictions, it could be months before supply catches up with demand.
#3. Prices: How much will retail stores charge for cannabis? Initial estimates, according to interviews with shop owners, suggest that recreational marijuana will start at anywhere from $50-$60 an eighth, after taxes. Edibles prices could remain stable, but that remains to be seen.
Prices could fluctuate wildly this winter and summer until more inventory comes on line. What dispensaries charge for their products will give us insight into how much consumers are willing to pay for recreational cannabis vs. the black market – and the profit and revenue potential of cannabis businesses.
#4. Staffing: Will retail stores have enough workers to handle the initial rush to buy marijuana? Many are boosting staffing and hiring temporary workers for the first couple weeks of recreational sales. But if demand comes in on the high end of expectations, cannabis shops could be overwhelmed by a crush of consumers. Throw in the fact that many workers are still struggling to obtain employee licenses – a requirement to work at retail shops – due to delays at the state’s marijuana enforcement agency, and there’s the real possibility of a staffing nightmare.
#5. Consumer preferences: Will consumers clamor for edibles and infused products over raw marijuana? Will they favor high-end, highly potent cannabis, or will they opt for the cheapest prices regardless of potency levels? Consumer preferences – which will likely differ from what we’ve seen in the medical marijuana market – will shape business decisions and define business opportunities going forward.
#6. Enforcement: How hard will local, state and federal authorities – as well as the agencies charged with overseeing the marijuana industry – enforce the laws? Strict enforcement is critical to the long-term success of the recreational cannabis industry and can help weed out sketchy businesses. But it will be difficult: Colorado has failed to adequately enforce the laws covering medical marijuana, and stemming the flow of cannabis to other nearby states seems like an impossible task.
#7. Medical marijuana sales: How will the new recreational market affect the existing medical marijuana industry? Will medical marijuana sales take a hit, or will they continue growing because recreational prices are much higher? Many dispensaries have opted not to apply for adult-use licenses at this time, as they are waiting to see how it all plays out. The risk, however, is that they miss out on a potential windfall of business and then have to compete against shops that have already earned a loyal following.
A lot is riding on the answers to these questions.
From a national perspective, Colorado will serve as a test case for recreational marijuana. If all goes relatively smoothly, more states will no doubt consider legalizing marijuana, and Colorado’s regulatory model could become a blueprint for the rest of the country. Mainstream investors and business professionals will look to get involved, and business opportunities will soar.
Conversely, if the program leads to a host of problems – crime, the diversion of cannabis to nearby states, increased youth use, unethical business practices – other states could be hesitant to legalize cannabis, and the feds could step in.