(MintPress) – After legitimizing medical marijuana dispensaries in 2010, Colorado saw a “green rush” in the amount of persons opening medical marijuana businesses. According to lists by the state’s Medical Marijuana Enforcement Division, the amount of businesses peaked by the end of 2010 with about 1,131 registered marijuana-related businesses.
With momentum in the legalization movement, one would assume the medical marijuana industry still would be booming, but in reality the opposite has happened — despite the fact that Colorado has retained the same amount of medical marijuana patients as it saw in 2010, which is more than 108,000 patients.
As the Denver Post reported, only 675 dispensaries and makers of marijuana-infused products currently remain — a decrease of more than 40 percent.
Michael Lee is one of those ganjapreneurs who has decided it’s time to close his shop, Cannabis Therapeutics in Colorado Springs, Colo.
Opening shop for the first time in 2005, Lee is believed to be the first person to open a medical marijuana dispensary in the state. But after running his dispensary for eight years, Lee says he can’t continue working in the industry anymore, as the state regulations have pushed him to his breaking point.
“I don’t know how anyone can survive this pressure,” Lee explained.
The pressure Lee is referring to is the legal tightrope dispensary owners must walk. Marijuana is legal in Colorado for medical and, most recently, recreational use, but it’s still illegal federally.
Lee told the Denver Post he has been been robbed, audited by the Internal Revenue Service (IRS), had his marijuana-testing lab raided by the Drug Enforcement Administration (DEA), and in recent months was charged with a felony for cultivating too many marijuana plants at his dispensary.
The felony charges were later dropped against Lee, but he says as the medical marijuana marketplace matures, it’s becoming more challenging to run a successful business. Lee said as soon as he would become familiar with one set of rules, they would change. One example Lee gave was that after investing in a marijuana-testing lab, the state passed a law prohibiting dispensary owners from owning labs.
Playfully nicknamed “green crush,” the decline in medical marijuana businesses is largely the result of the state’s attempt to regulate the industry.
“We predicted a consolidation,” said Matt Cook, a former state official who oversaw the creation of Colorado’s medical marijuana business rules and now works as a consultant. “I think it’s playing out exactly that way.”
While some dispensary owners like Lee choose to close shop themselves, others are shut down after receiving letters from the state’s U.S. attorney that they are too close to schools and will face prosecution if they don’t relocate. Others caved to the pressure of federal rules that make it nearly impossible for marijuana-related businesses to receive bank loans or tax deductions.
“It’s a capital-intensive industry,” said Jill Lamoureux, a former dispensary owner, “and it’s extremely high-risk.”
Lamoureux, a pioneer of the medical marijuana industry in Colorado who served on two committees that helped draft medical legalization rules, says she decided to close her shop after four years, which she says felt like 24 years, because of exhaustion.
Describing constant worry about banks leery about working with dispensaries because of federal laws and receiving warning letters from the U.S. attorney, Lamoureux said she opted out of owning a dispensary and now works as a national medical marijuana advocate.
Big dispensaries have the best survival rate
Of the businesses that remain, Robert Frichtel, who runs a consulting company called Medical Marijuana Business Exchange, said they have a lot of money behind them and are taking over failed businesses and creating dispensary chains. This likely explains why the amount of Type 3 dispensaries, businesses that serve more than 500 patients, has remained constant over the years.
Size of the dispensary is another factor in the success of a business, as medical marijuana dispensaries are required to grow a majority of what they sell.
“The bigger players have done well with having adequate grow space to support patient demand,” Frichtel said. “One of the things that’s very clear is the more successful your grow operation is, the better positioned you are to serve your patients.”
Though there are fewer dispensaries, the state’s Department of Revenue reports that sales-tax revenue from marijuana sales has increased. For the fiscal year that ended in June 2012, the state reported it collected $5.4 million from medical marijuana businesses, which is about $1 million more than the state collected in the 2011 fiscal year.
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