Higher Hurdles for Colorado's Medical Marijuana Entrepreneurs

A reporter faces a strange dilemma when talking to people associated with Colorado's burgeoning medical marijuana business (known in the area as the MMJ business). Many are excited and enthusiastic about the industry's rapid growth and will talk for hours about the subject, particularly about the product's medicinal benefits. But at the same time, you get requests to withhold names and other information for safety and legal reasons.

That reluctance stems from the very close national scrutiny Colorado is currently under, due to its pioneering medical marijuana regulations. The state decriminalized medical use of marijuana in 2001 and a bill, signed into law earlier this year, established a landmark set of laws for medical marijuana dispensaries -- or, as they're now known, centers. These facilities have to comply with rules regarding licensing, local zoning laws and criminal background checks for owners. They're now also required to grow at least 70% of the marijuana they sell.

Big on Dreams, Fuzzy on Implementation

These laws are still works-in-progress and are being challenged by some Colorado communities. But they're also seen as a major step toward bringing uniformity to how the MMJ centers are run. "I would like to be part of making this more of a legitimate industry through their business practices," says one woman, an MBA graduate one year out of university who asks to remain anonymous. As a consultant for other small startups and entrepreneurs, she says the MMJ center owners are like many people starting small businesses -- big on dreams but fuzzy on implementation.

One major difference, however, are the legal obstacles MMJ owners face. "The regulation that they're going through is monumental," she says. "Some of the lawyers who were working on helping to protect some of these dispensaries say they have never seen a form in any instance that is as long as these dispensaries had to fill out, even those with legitimate businesses within the state."

Another major struggle is that many banks, attorneys and CPAs shy away from MMJ owners. "A lot of companies...don't want to associate their names with them," says the consultant.

These Businesses Don't Run Themselves

"There are no dispensaries walking in and getting [bank] loans to go ahead and construct a new building and other things small businesses would have access to," says Ryan Cook, general manager of The Clinic Alternative Medicine. His company currently has three MMJ centers in Denver, with several more in the planning stage.

Cook says the state's changing MMJ laws and regulations aren't for the laid-back. "You need to be actively engaged in your business. This is not the type of business you can allow to run itself," he says. "So we spend a lot of time in lawyers' offices, with consultants and working internally, kicking some things around. It's challenging, but that makes it exciting and a fun kind of business to be involved in right now."

Even with the extra challenges and paperwork, MMJ centers can be quite profitable. A relatively small and successful dispensary can gross about $100,000 a month. And like many other companies, MMJ facilities are generally trying to streamline their business operations and put some of the profit back into the company.

Sponsored Links

And that's creating new opportunities for other companies. For instance, Agropath Software has developed a system to help MMJ dispensaries ensure they remain compliant with Colorado laws. There wasn't anything on the market that was satisfying that need," says Agropath President Eric Little. "People were keeping notes on paper, in their head, on Excel spreadsheets."

Little says his system is designed specifically to help the MMJ centers manage their newly mandated growing operations. "A lot of people previous to the legislation weren't growing on their own, they were buying wholesale," he says. "Now, they're going to be forced to grow their own and keep compliant, which they wouldn't have known how to do until recently. So, the software will assist with that."

Free-Market Forces Will Prevail

A lot of the smaller MMJ operations in Colorado are already falling victim to the new regulations. Before the deadline this month to file essential applications, "there were, per capita, more medical marijuana dispensaries in Denver than there were Starbucks," says the consultant. "I know that a few dispensaries have gone out of business since then, a lot of disconnected phones."

"This is where the free market comes in and starts to change the game," says Cook of The Clinic Alternative Medicine, "where a lot of individuals are going to go out of business -- because they are not providing a quality product, they're not providing it in a professional environment or with professional individuals, or they don't have the knowledge and science base to understand what they're doing."

Attrition among Colorado's estimated 1,100 MMJ dispensaries is likely to pick up. Estimates of how many could go out of business in the near future, unable to comply with the new state regulations, range from 20% to 50%. "This will become more corporate," says Cook. "There will continue to be mom-and-pop-style shops, owner-operators. . .and then there are going to be the large, more corporate companies that start to create chains. Colorado is at the forefront of where a lot of legislation will go across the nation. And when it does, there will be a serious need for individuals to consult and get these industries booming in other states."

Both sides of the medical marijuana issue are closely watching how Colorado's government and dispensary owners handle the new regulations on what remains a highly controversial industry.

Also in this series:
The Business of Buds: Why Marijuana Prices May Head Lower
Who Will Sell New Jersey's Legalized Pot?
Medical Marijuana: A Grass-Roots Business Issue Grows in Colorado