When the flood gates open for Colorado’s recreational marijuana industry on Jan. 1, will there be enough inventory on hand to satisfy the rush of new customers?
Many in the industry say no.
The reason: Colorado cultivators are already operating at or near capacity in the current medical marijuana market and cannot ramp up production yet for recreational sales because of restrictions under state law.
So while demand is expected to soar, supply will be roughly the same over the next few months. That imbalance could create a host of problems, from operational issues to empty shelves. Retail stores might have to actually turn away customers or temporary close to rebuild inventory. And prices could fluctuate significantly (for more on pricing, see our upcoming story this Friday).
“There is no way there is enough [marijuana] in the system right now for the rec market,” said Van McConnon 0f the cultivation consultancy Colorado Cannabis Systems. “I honestly have no idea how you can follow the rules and run a rec shop in the first year of business.”
Cultivation Restrictions
Initially, only existing dispensaries in Colorado will be able to sell recreational marijuana, provided they obtain state and local approvals.
Regulators are allowing these businesses a one-time transfer of plants, edibles and infused products from their medical to recreational inventory.
But dispensaries (which must grow most of the marijuana they sell) cannot begin growing additional plants for the recreational market until January – after adult-use sales begin. Rather, they must currently tie all production and inventory to their current registered patient base.
Those that receive licenses for recreational sales are allowed to purchase up to 30% of their cannabis from the wholesale market.
However, there likely won’t be much available because of the current growing restrictions. At the same time, demand is expected to soar as tourists flock to Colorado to buy marijuana and more in-state residents consume cannabis.
Although it’s difficult to predict how much demand will increase, the disparity will likely create a shortage in the market.
The situation should ease later in 2014. After the one-time transfer, regulators will begin to license recreational cultivators, which will be able to increase their plant counts based on a three-tiered system.
But nobody knows how long it will take Colorado’s infamously slow Marijuana Enforcement Division to license the cultivators. The lag time in licensing, matched with the three-month growing cycle for cannabis, means cultivators may not see an increase in inventory until perhaps the summer or later.
And the state hasn’t yet released much guidance on cultivation rules, so there’s still a lot of confusion about how it will all work.
Advanced Planning Required
The big question now is how the first crop of retail stores will handle the shortage.
Norton Arbelaez of the medical marijuana center River Rock Wellness – which plans to begin recreational sales in February – said business owners should have begun planning for the new market at least six months ago.
River Rock began preparing last summer by adjusting its growing cycle so that its maximum legal limit of plants would be ready for harvest beginning in 2014. It also brought on additional staff and built out extra space in its grow facility, adding more lights and a cooling system in anticipation of obtaining a recreational license.
Going forward, Arbelaez said business owners should create a smart strategy for which plants to transfer to the recreational inventory.
“You’re not going to transfer 4,000 clones,” he said. “You’re going to do maybe 500 clones, 500 plants in veg and 2000 plants that are close to harvesting so you don’t have to wait three months for your first [recreational] harvest.”
Businesses can also shut their doors a few days a week to stockpile inventory.
It’s All in the Transfer
Luke Ramirez, owner of the Walking Raven dispensary in Denver, said he has even raised prices on his medical marijuana to curb sales.
Ramirez said the one-time transfer also opens the door for selling products that are not yet licensed for recreational consumption, and businesses will have to decide whether or not to transfer these products.
“If I bought 1.000 Cheeba Chews right now I could declare them in my transfer, even though [Cheeba Chews] is not [recreational] yet,” Ramirez said. “That is only for the one time.”
A Cheeba Chews representative said the company has not yet applied for a recreational license, and is instead going to wait and see how large the recreational market actually is.
Walking Raven has applied for a recreational license, and Ramirez said the business will operate as both a recreational and medical dispensary if the licenses are approved.
The dual license means Ramirez will need to split up his inventory between medical and recreational. Once a plant is transferred to recreational inventory, all clones that come from that plant must be registered with the state’s Marijuana Inventory Tracking System as recreational plants. So Ramirez said he’s growing duplicate mother plants for all of his top strains.
But Ramirez said he’s still hamstrung by the plant count. And even with the duplicate plants and transferred products, he’s anticipating a shortage.
“Most stores already have their grow houses maxed out,” he said. “Even with the added plant counts, I just don’t see the rec market producing much more than the existing medical market.”
