Weed business is booming in Colorado

High Times: How to Run a Weed Business in a Bull Market

In Colorado, supplies are dwindling, prices are jumping, overseas customers are jetting in—it's enough to test any new CEO

The Healing House is fresh out of recreational weed.

The last customer bought the last eighth sometime Thursday afternoon, nine days after the Healing House and about a dozen other Denver dispensaries made history by selling it, legally, to anyone 21 or older who walked in the door. Gone is the Afghani Kush, the Blue Dream, the Golden Goat, the Grape Ape. You want the sticky green before Saturday, when the next round of product is cured and clipped, you’ll have to head somewhere else—and pay more.

Classic supply-and-demand issues have rolled into Denver’s brand-new retail marijuana market in the past week, as potheads from all over the world have flown in to partake in the nation’s first place any adult with a valid ID card can buy dope, choosing from dozens of available strains.

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Eighths that go for $40 to medical marijuana users cost as much as $80 in Colorado now, thanks to a green crush of demand and a sapped supply. “We still have some edible left,” one of the owners, Russ Hunchar, tells Vocativ. But the “flowers,” the buds? “We won’t have any more until Saturday.”

Weed business is booming in Colorado
Sam Walsh (left) a budtender, and his colleague set up marijuana products as the 3-D Denver Discrete Dispensary.
(Theo Stroomer/Getty Images)

The shortage is forcing shop owners in a very new segment of a very old business into a series of seat-of-the-pants business decisions: Do we raise prices because everybody else is? Because we’re almost out? Because there’s a line around the block? If so, by how much? And for how long? It’s a massive guessing game, playing out all over the state. (The bull market is even creating a new opportunity for Colorado’s street dealers, who are dumpster diving to get the trimmings that the retail shops throw out.)

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There’s still plenty of weed for sale at the Healing House, and across Colorado. But it’s only available to medicinal users who’ve applied for and received “red cards,” which afford them access to the hundreds of dispensaries scattered across Denver and the state. Only the few shops granted special permission from local and Colorado officials are hawking retail weed, and they’re running out, fast.

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They’re also price gouging, to put it bluntly. The cost for an eighth of pot at Evergreen Apothecary went up $10 in a single day on Thursday—from $50 to $60. That’s still fairly reasonable, considering that upscale shops like The Clinic, with a reputation for having some of the best pot in the world, sell eighths for $70. But it’s twice what the black market and the medical market charge.

“The market bears it,” says “Citizen” Jay Daily, who works at Evergreen. “I hear people laughing and complaining about the ‘idiots’ who lined up to spend all that money; well those idiots are 60-year-olds with ties. They’re 80-year-olds with walkers. They’re happy to spend the money to come into a safe environment. We went to $60 an eighth today, and there are still people lined up out the door. We served over 450 clients yesterday and had to hire three new people.”

With so many customers and so much weed available, what’s the problem? Are the greedy dispensaries bogarting, so they can drive up prices? Not exactly. State law permitted a one-time transfer of inventory from a dispensary’s medical supply to its recreational one. So the shops granted retail licenses all had to make a single guess about how much they’d need to satisfy retail customers—without running out of the product their patients rely on to treat glaucoma, among other ailments.

Weed business is booming in Colorado
The co-owner of BotanaCare in Northglenn, Colorado, holds bags of its sample packs of various strains of marijuana.
(Rick Wilking/Reuters)

Because most of Denver’s dispensaries are medical-only, a city-wide shortage is unthinkable, but the last thing a shop owner wants to explain to a cancer patient and longtime client is that he sold it all to recreational users (this hasn’t happened yet).

“We transferred everything we could,” Hunchar says. “But we weren’t sure how it was going to go. Now we’re waiting on new product to come out.”

From here out, dispensaries like Hunchar’s can sell only retail weed that was grown to be retail weed (and also categorized, inventoried, reported and taxed as retail weed), so he can’t just dip from the medical stash to meet retail demand. He has to grow more, which means making carefully calculated decisions about how much space to devote to what plants in the grow room, when to shift and add staff to the retail side of the operation in order to maintain enough supply in a completely unpredictable market.

“It’s a catch-up game,” he says. And in the meantime, it’s a pricing game. Retail shops are making careful decisions about how much to charge customers, which includes figuring the 36.12 percent in taxes added to every purchase; the additional costs involved in setting up a separate point of sale and inventory tagging procedure; and then the trickiest part: how much people will pay.

Daily says most new retail shops in Colorado opened 2014 with a blind stab at what the opening price should be. They tied it directly to the historic rate for an eighth of top-quality black-market weed: $50. If people were paying that on the street, why wouldn’t they in a comfy shop?

That’s where Hunchar set it, too, not necessarily because that was the old street price but because he ran the numbers, knew that amount would cover the additional costs and assumed people would pay that much. “We just took a stab at it, like everybody else,” he says.

Weed business is booming in Colorado
A customer from Ohio shops for some weed at the 3-D Denver Discrete Dispensary.
(Theo Stroomer/Getty Images)

Over the past week, Hunchar has found himself making supply-and-demand decisions within the shop. He has a general idea that other dispensaries are running low and that prices are going up, but he’s been adjusting the rate for individual strains based on what the Healing House has in stock—as opposed to what might be a “better quality” product.

If he’s sitting on a bunch of Afghani Kush, for example, the price might drop to $45 an eighth. If he’s low on Blue Dream, maybe that shoots to $55. That way he can balance the inventory, and keep a good mix of options for customers.

Decisions like that don’t sit too well with chronic, black-market stoners in Colorado. Reviewing the Lodo Wellness Center on New Year’s Day, one customer with the user name Lolcopter complained on Weedmaps, the Yelp of marijuana, that he’d gotten “stiffed” on an eighth, and that the prices “suck, lol $60 1/8 gtfo [get the fuck out].” He continued, “Sorry LWC, i know it’s crazy right now, but once the retail novelty price gouging settles down, maybe i’ll be back.”

Don’t like it? Don’t buy it. Pot is a commodity now, Hunchar points out. And there are new costs associated with selling it, at least recreationally. If the state of Colorado discerns that the per-pound price of pot has on average leaped from $1,800 to $1,900, the government will use that as the basis for calculating the 15 percent wholesale tax dispensaries must pay when selling recreational pot.

So to some extent, these shops don’t have a ton of leeway to buck the going rate. Sell pot for too little, you’re still paying a tax based on everyone else’s prices. “There’s a shortage now. When there’s a shortage, what happens? The price goes up. Just like anything. Just like crude oil.”

Better tasting than crude oil, one would hope. So the question now is, how long does the madness last? Daily predicts that as more dispensaries get approval to sell retail pot, the price will drop below $50. “But it’s probably going to take more than a year to happen,” he says.

The same phenomenon happened after voters here approved medical marijuana. The price started high, more dispensaries opened, the price went down, a rule change forced a bunch of dispensaries to close, the price went up again, the market normalized, prices went down again. “Once we get past the craziness, you’ll probably see an eighth go for $40 or $45,” Daily says. “But as of now, people are coming here from all over the world: Amsterdam, Russia, Australia, Germany.”

Weed business is booming in Colorado
Packaging buds for sale at Botanacare
(Rick Wilking /Reuters)

Another unanswered question: What happens to the black market now? At half the cost of retail, street corner dealers may be licking their chops, especially if “they can get ahold of some of this medical weed,” Daily guesses.

But in time, he’s convinced, the black market in Colorado will die out altogether. If people want better prices, they’ll get a red card. Better weed, they’ll pay the premium.

“No one buys schwag in Colorado any more,” he says. “Why would you, even if you can spend $30 an eighth? He can tell you it’s Sour Diesel or whatever, but it’s not. It’s probably got all kinds of chemicals in it. You don’t know if it’s been tested for mold, parasites, mildew, if it’s organically grown, inspected.”

You do know it’s a hell of a lot cheaper way to get high, though.

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