How to open a marijuana dispensary in Colorado | SummitDaily.com

How to open a marijuana dispensary in Colorado

Elise Reuter
ereuter@summitdaily.com

Starting a new business may be difficult, but that goes double for dispensaries. Obtaining a medical or retail marijuana license can be time consuming and costly and, in some cities, prohibited.

As towns vote to continue moratoriums limiting the number of licenses allowed, business owners may find themselves in a pinch, such as the case of a Breckenridge man, Gabe Franklin, who obtained a medical marijuana center license through a transfer of ownership in 2015. The catch — he didn't have the cultivation license required by Colorado law, as medical dispensary owners must produce a minimum of 70 percent of their on-hand inventory.

"It's a pickle of a position to be in," Assistant Town Manager Shannon Haynes said. "He dropped the cultivation license and only has the medical license, so he can't sell. … The hindrance here is we have a moratorium in place that doesn't allow for a new license to be issued."

The town currently has four dispensaries open on Airport Road, compared with two in the neighboring town of Frisco, one in Silverthorne and three in Dillon. Statewide, Colorado reported 514 licensed medical marijuana centers and 424 retail centers as of March 1, 2016. The state also reported 753 medical cultivations and 503 retail cultivations. Colorado offers a total of seven different licenses related to the sale, cultivation, testing and infusion of cannabis.

Lynn Granger, communications director for the Colorado Department of Revenue's Enforcement Division, noted the state would not issue a license to applicants for locations that are capped under local law.

"The Marijuana Enforcement Division (MED) checks to see what the caps are, and they don't issue the license," Granger said of Franklin's case. "With medical, however, they issue the license and it's done on the back end with the counties. They end up having a license but they can't really use it."

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While he could turn his license in, Granger added, "I don't know if they would want to do that, wait and see, or move."

While Breckenridge's town council discussed the possibility of allowing Franklin to obtain a cultivation license, they ultimately decided to wait for the moratorium to expire in July 2016.

"We need time to think about all of the ramifications of this," said Wendy Wolfe, who served on Breckenridge's town council through March 22, 2016. "One applicant has brought this glitch to our attention. We were trying to help somebody out. But if they turn around and sell this license, we've got a different thing on our hands."

Currently, the cost of a medical marijuana center application ranges from $7,000 to $15,000, depending on the number of patients the center serves. Initial license fees alone range from $5,200 to $13,200, and renewals cost slightly more.

The process for a retail establishment is significantly cheaper, with application fees set at $5,000 and initial license fees at $3,000. Each employee is also required to get an occupational license, or "badge," which come in at $250 per person.

In total, the cost of opening exceeds $1 million, according to special counsel Jean Gonnell of Denver-based business firm Hoban & Feola, LLC.

"I don't think you can even start a marijuana business in Colorado with less than a million dollars," Gonnell said. "If you wanted to start one in Denver, I don't think you could start one for less than $2 million."

THE OTHER KIND OF GREEN

While the cannabis industry might be attractive to some investors, Colorado law currently restricts out-of-state lenders from obtaining a profit share. Under the current law, only business owners may have a profit share, and the owner of a medical or retail marijuana business must be a two-year resident of the state prior to applying for a license.

"There's a lot of doubt. A lot of people think marijuana should be treated differently than other businesses," Gonnell said. "There's a lot of red tape as to where the funds can come from, how you can pay investors and security investments for facilities."

A bill was introduced to the Colorado Senate in January that, if passed, would allow license applicants to be either a Colorado resident or U.S. citizen for applications submitted starting January 2017. The bill would prohibit owners from being a publicly traded company, and require a controlling interest of licensees to be Colorado residents.

Currently, the only ways to invest are to loan money with a high interest rate, or invest in a cannabis-related business that does not require a license, such as security or containers.

"You can have an unsecured promissory note with a high interest rate. But for some out-of-state lenders, that's not enough," Gonnell said. "It's been that way since the beginning. It's really just coming down to (the state) wanting to make sure cartels and bad actors are not benefitting from Colorado's marijuana industry."

To add to the difficulty, most banks will not allow marijuana-related businesses to open an account, as it is still illegal at the federal level. The few smaller, local branches that do often charge high fees. To remit sales tax to the state, Granger noted many businesses just use cash.

"It's a total hassle. So much that the MED has a cash-counting machine there," Gonnell added. "A lot of people don't work in cash so they have to go get money orders."

Currently, Colorado collects a 2.9 percent sales tax on all sales, and a 10 percent sales tax on retail sales. A 15 percent excise tax also figures into the listed price of retail products.

On top of that, local sales taxes are applied. In Frisco, Silverthorne and Breckenridge, a five percent excise tax is collected.

"It's a tougher industry because you have both state rules and local rules you have to abide by," Gonnell said. "So, you have to know both."

Despite these drawbacks, those who have made a foray into the industry have been able to reap the rewards. High County Healing customer relations director Joe Lindsey stood by the counter, giving customers high fives and smiles as they walked through the door. Since opening as a medical dispensary, High County Healing expanded to retail, as many businesses have done since Amendment 64 passed.

"It's a very dynamic industry," Lindsey said. "That's why I love it."

Numbers of Marijuana Licenses in Colorado

By type, as of March 1, 2016

Number of Licensed Medical Marijuana Businesses:

Centers: 514

Cultivations: 753

Infused Product Manufacturers: 206

Number of Licensed Retail Marijuana Businesses:

Stores: 424

Cultivations: 503

Product Manufacturers: 173

Testing Facilities: 15

SOURCE: Marijuana Enforcement Division