Inside Denver’s struggles to diversify its $700M marijuana market

“It’s not the program’s fault,” Cohen said, praising the efforts of city and state policymakers. “There’s a high cost to all the [cannabis] regulations.”

As weed legalization spreads across the country, white-owned cannabis companies are overwhelmingly the ones raking in billions of dollars a year selling a drug that disproportionately landed people of color behind bars. To counter the trend, cities like Oakland, Calif., and Cambridge, Mass. have launched initiatives to diversify their marijuana industries and offer business opportunities for those stung by the war on drugs — only to find themselves struggling to get those programs off the ground.

When Denver launched its social equity program last year, setting aside licenses for delivery operators and cannabis lounges where people could consume, it sought to reimagine its marijuana industry. Cohen, who is white, but qualified thanks to a decades-old marijuana conviction, jumped at the opportunity to start his own business.

Yet, nearly a year in, Doobba was doing fewer deliveries than his worst-case projections. And the company’s demise despite Cohen’s know-how and connections made its failure unnerving to other social equity applicants.

“[Cohen] had the business chops. … He had more dispensary partners than me,” said Michael Diaz-Rivera, a social equity applicant who operates Denver-based firm Better Days Delivery. “Am I just throwing money into a bottomless pit because I’ve been sold this dream of generational wealth that might already be gone?”

The earliest states to legalize weed — including Colorado — typically did so with ballot measures that lacked provisions designed to help people with cannabis charges into the industry. After seeing large, white-owned corporations crowd out small operators already struggling to compete with thriving illicit markets, many governments and civil rights activists are trying to repair the harms of marijuana enforcement.

Oakland pioneered the idea of building diversity into the marijuana industry when the city launched the nation’s first social equity licensing program for cannabis in 2017. Since then, states like Massachusetts, Illinois and New York have moved to put the concept at the forefront of their legalization efforts. And on Capitol Hill, Senate Majority Leader Chuck Schumer has introduced a weed legalization measure coupled with several equity measures, including funding for states to develop social equity programs.

Still, despite its lengthy experience regulating marijuana, Denver’s social equity program is faltering: weed deliveries account for less than one half of 1 percent of all marijuana sales in Denver. The overwhelming majority of the city’s more than 200 cannabis shops have also shunned the opportunity to partner with social equity businesses to do weed deliveries.

The city’s struggles offer a valuable lesson on what it means to uplift those harmed by marijuana prohibition, how industry rhetoric on social justice is often toothless, and why even the most well-intentioned policies fail.

Behind the curve

At the outset of legalization in Colorado, state law banned people with marijuana felonies from getting a cannabis business license. Now, Colorado is trying to compensate for that policy, but it may already be too late. The state’s weed market is already one of the largest in the country, surpassing $2 billion in annual sales since 2020. A challenge facing policymakers is how to give new entrepreneurs a boost in a market with well-established players.

Starting in April 2021, Denver reserved new licenses of all types — dispensaries, producers and cultivators — solely for social equity applicants. Entrepreneurs can qualify for the program if they or a family member were arrested or convicted of a cannabis offense, or by meeting certain residency or income requirements.

They also gave those applicants an exclusivity period for two new types of licenses: cannabis deliveries and consumption businesses that had previously not been allowed.

Cannabis businesses had been clamoring for the ability to do deliveries since the outset of the Covid-19 pandemic, said Eric Escudero, a spokesperson for the Denver Excise and Licensing Department. Under the program, existing dispensaries would have to partner with social equity applicant-owned delivery businesses for the first three years that shipments were allowed.

“The continued struggle we’ve had is we haven’t seen many stores participate,” Escudero said.

Both Cohen and Diaz-Rivera struggled to find dispensary partners. Out of the city’s more than 200 dispensaries, only eight are actively conducting deliveries.

“A year and a half has already gone up [with] this exclusivity. And the dispensaries are just waiting it out,” Diaz-Rivera said. “What good does it do for us if they know that they can just wait?”

Three dispensary executives, in interviews, cited numerous hurdles to participating in the program, including local control, $20-$25 delivery fees, transporters’ lack of access to capital and technological challenges of integrating delivery platforms with dispensaries’ existing sales software.

“This isn’t a profit channel for us,” said Denise De Nardi, chief sales officer of Colorado dispensary chain Native Roots, which is trying to launch deliveries in Denver this fall.

Structural hurdles

Regulators in Denver are also hoping to help social equity applicants with technical assistance and grants.

The city is partnering with the Color of Cannabis, a Denver-based nonprofit, to run the educational program for social equity licensees. The organization is led by Sarah Woodson, who runs her own social equity delivery business in nearby Aurora.

Color of Cannabis is running a 10-week program that includes sessions on the regulatory structure of the industry, how to use the seed-to-sale tracking software METRC and advice on navigating legal and funding issues unique to marijuana.

“Everything is challenging in cannabis,” Woodson said. “We want to … provide [entrepreneurs] with the tools they need to navigate these challenges.”

The state also recently gave out half a million dollars in grants to help fund social equity applicants. But even the most well-intentioned assistance from regulators can’t help overcome structural challenges beyond the city’s control, entrepreneurs said.

Colorado law gives municipalities wide latitude on marijuana policy. In fact, many cities and towns throughout the state — including Colorado Springs, the state’s second largest city — still bar adult-use marijuana sales, despite the state’s reputation as a haven for the cannabis industry.

Local governments must pass an ordinance to allow deliveries or voters can do so at the ballot box. To date, only a handful of the state’s nearly 300 jurisdictions have OK’d deliveries.

Local control was one of the biggest challenges Cohen ran into after starting his delivery services: Doobba was only allowed to deliver within the city of Denver. But from the start, 80 percent of the calls his business received were from people outside the city limits.

“Coming from a hospitality background … you want to say ‘yes’ to your customers,” Cohen said. “Every time you say ‘no,’ it’s like a lost opportunity in sales.”

Bureaucratic snafus are also holding up entrepreneurs.

Dewayne Benjamin is a social equity applicant with a prior marijuana-related conviction who received a $50,000 grant to help boost his consumption lounge in Denver. Benjamin has operated Tetra Lounge for four years under a pilot program that prohibited cannabis sales on the premises. But he had to shut his doors in January while he sorts out zoning and building issues as he seeks to get licensed under the new social equity program.

All the while, he’s still paying the costs to maintain his space, which pays homage to famous stoners with photos of Rihanna, Snoop Dogg and Willie Nelson adorning the walls.

Building regulators told him they lacked architectural plans on file for his building, requiring him to hire a variety of professionals — architects, electricians, engineers — to draw up new plans to submit to regulators. He doesn’t understand why city officials didn’t raise the issues with him earlier.

The renovations to make his space ADA compliant cost more than $80,000, eating up his grant, among the largest issued by the state.

When he first moved in, the place was a plain white box Benjamin ultimately renovated himself. He had an assist from local artists, who filled his backyard space with colorful murals.

“I’m a small business owner,” he said. “I didn’t have the budget to come in and just do a whole remodel.”

Benjamin is now planning to reopen next month and there are other signs the city’s diversity efforts could be heading in the right direction.

Signs of progress

Denver’s marijuana regulator will soon introduce legislation to the city council designed to address some of the issues hampering the program. The measure would bar dispensaries from ferrying cannabis themselves entirely and slash licensing fees for setting up delivery businesses.

And while existing businesses have proved reluctant to work with social equity delivery services, some of those applicants have gotten off the ground thanks to interest from existing operators and the Color of Cannabis program.

Desiree Duran, a social equity applicant who received a license to do deliveries, was demoralized when she kept getting rejected by dispensaries she sought partnerships with.

Duran decided to pivot, inspired by her cousin who was already making infused cannabis products at home for her husband’s medical condition. She was inspired by the sweets of her childhood — Mexican pastries called pan dulce.

The program helped connect her with an existing manufacturer that liked her vision of infused pan dulce, unlike the naysayers she’s heard question her ability to enter upscale markets like Aspen. The manufacturer offered to let her use his kitchen space to help get her business off the ground.

“I have no access to funding. I have no connections,” said Duran, who went through Woodson’s course. “If it wasn’t for Color of Cannabis, we wouldn’t be where we are today.”