Pubdate: Sun, 08 May 2016
Source: Denver Post (CO)
Copyright: 2016 The Denver Post Corp
Contact:  http://www.denverpost.com/
Details: http://www.mapinc.org/media/122
Authors: David Migoya and Ricardo Baca

HEADS OF INDUSTRY

Ten people control nearly 20 percent of the 1,046 marijuana business 
licenses in Denver, and those owners have built their empires largely 
through acquisitions of smaller operations. With new industry caps on 
grow-facility and store locations in Denver, consolidation by the big 
players is likely to intensify. Some independent owners say tax and 
regulatory burdens make it difficult for smaller pot businesses to survive.

Vail's largest commercial developer. An owner of a car-detail shop. A 
former nonprofit event planner. A businessman who made a fortune in 
child car seats. A one-time Subway franchisee bankrupted by real estate losses.

These entrepreneurs - Peter Knobel, Joshua Ginsberg, Rhett Jordan, 
John Lord and John Fritzel - have emerged atop Denver's pot industry 
just two years after the first recreational joint was sold.

In all, they hold 134 marijuana business licenses in Denver - about 
13 percent of the total.

An analysis of marijuana license data in Denver, which accounts for 
about 44 percent of licenses statewide, reveals for the first time 
who is behind the pot industry and how the market ownership has 
evolved since January 2014.

The Denver Post identified the biggest players as those holding the 
most licenses as of April 15 in Denver - because comparable statewide 
information is difficult to obtain. The Post found that 10 people 
control nearly 20 percent of Denver's 1,046 active medical and 
recreational licenses.

They have cornered the top of the city's pot market largely by 
acquiring smaller grows, shops, dispensaries and infused product makers.

"We're not trying to be the biggest," said Ginsberg, a partner in the 
Native Roots chain, which holds 59 licenses in Denver. "We'd simply 
like to be the best."

But the numbers tell a story of a consolidating industry, as big 
operators buy small ones struggling to keep up with more government 
regulations, tax rules and other pressures.

"I don't believe there is any room in the future of retail cannabis 
for small independent shops such as mine," said Toni Savage Fox, one 
of the first medical pot businesses to move into retail sales. "Not 
for much longer, anyway." With no limit to the number of licenses any 
one person or company can control, and new city-set caps recently 
approved to limit store and grow-facility locations, the city's 
marijuana trade looks ripe for the big players to dominate even more.

Although several people stood out as likely candidates to be atop the 
recreational industry when sales began - those who already held 
medical marijuana licenses and were the only ones allowed to obtain 
recreational ones - that has happened only in part.

Among the top 10 owners, just three led the list of medical marijuana 
business owners in the state in 2013 before recreational weed became 
legal here.

Of the top five, only Lord was a factor in the medical marijuana 
sector when retail sales began. Today he sits atop its leaders with 
14 retail licenses. He still holds the oldest marijuana license 
issued by the city, in 2010.

Consolidation

About $330 million of medical marijuana was sold in Colorado in 2013, 
and that grew to $408 million in 2015. But the real growth has been 
in retail sales, which exploded from zero in 2013 to $588 million 
last year, bringing the total marijuana market to just under $1 
billion, state figures show.

Of the city's licenses, about two-thirds are medical and onethird are 
recreational. One of the reasons there remain so many more licenses 
for medical marijuana compared with recreational is that medical 
operations generally are smaller.

Among Native Roots' Denver licenses, 50 are medical and nine are 
recreational. Knobel is the controlling partner with 50 percent. 
Ginsberg and Jordan each hold a quarter, city license records show. 
Native Roots has operations in Denver, Aspen and Edwards.

Lord is sole owner of the LivWell business that holds 43 licenses in 
Denver and has operations in Colorado Springs, Trinidad, Garden City 
and the state's southwest corner.

Lord owned the most medical marijuana dispensaries in Colorado when 
recreational sales began - seven - and at the time appeared likely to 
build the largest retail presence.

The number of grow licenses often outpaces the number of shops and 
dispensaries because of the limit on the number of marijuana plants 
that can be cultivated under each. The more prolific the retail or 
medical shops, the greater the need for additional grow licenses.

Fritzel holds sole or controlling interests in four enterprises - 
Buddy Boy, Lightshade, PotCo and MJardin - which have 32 licenses in 
Denver, and the principals also have a presence in other states.

Between them, the top five employ about 2,000 people, enough to put 
them into the top 12 private employers in the city.

While the five will not openly discuss their finances, their revenues 
each reach about $100 million annually. One is confident enough to 
speculate that his operations across several states will top $250 
million in annual revenues within the next two years.

"What we're seeing in the acquisition market currently are exhausted 
owners," Lord said. "What I believe we'll continue to see here is 
further consolidation in the industry, and it will not be driven by 
competition. It will be driven by compliance."

"Not for the small guy"

Close behind the top five in terms of license numbers are partners 
Matthew Aiken, Christian Johnson and Anthony Sauro, whose Sweet Leaf 
enterprise holds 27 city pot licenses, followed by Shawn Phillips - 
The Sanctuary, The Grove, The Haven, The Shelter among them - with 
22, and Joseph Max Cohen's The Clinic with 21, the city's data show.

But there still is a large number of small shops.

The remaining Denver pot licenses are scattered among 641 people with 
ownership interests as little as 1 percent, records show. Many of 
them - 215 - have an interest in just one license; 175 of them are solo owners.

That the industry is becoming slightly top-heavy isn't surprising, 
insiders say, mostly because acquiring a license is easy.

"The industry knows pretty much what stuff is worth and what they can 
get for it," Fritzel said. "You can get a license, but it's what you 
do with it. It's all location-based."

A handful of the industry's early leaders are selling and walking 
off, blaming heavy taxes and regulations. Others say they will 
grittily fight on.

Fox's 3D Cannabis Center on Brighton Boulevard at best grossed 
$400,000 in one year as a medical dispensary. In its first year of 
retail sales, the shop topped $3.5 million.

The taxes she owed, however, eventually pushed her to pack it in. She 
is selling her business.

"With the intense competition, consolidation of other stores, large 
commercial stand-alone cultivation facilities, unfair tax burdens, 
overbearing regulations, the inability to do banking and other moving 
targets," she said in an email, "it's no longer my desire to be in 
this industry. I am done."

Pot businesses last year filed nearly 450 change-of-ownership 
applications with the state. Many more have said they would seek 
out-of-state investors if legislators approve a bill to allow the practice.

"The system is not at all set up for the small guy to succeed," said 
Michelle Tucker, whose High Street Growers and Back to the Garden 
shops recently were tagged with a recall over alleged use of 
unapproved pesticides. The incident has hurt her business.

"What beats me down doesn't even make those bigger guys flinch," she 
said. "But I'm not done."
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MAP posted-by: Jay Bergstrom