Marijuana business failure rate of 40 percent not bad, says industry expert

Cherry Top Farms closed in 2011.

In recent days, the Denver Post reported that the number of medical marijuana businesses in Colorado has dropped by more than 40 percent since its peak at the end of 2010 -- from 1,131 to 675 over the course of fewer than three years.

That may seem like a precipitous slide. But one industry expert says that after weighing the various factors and challenges unique to the medical marijuana business, the decline isn't calamitous as it might appear.

That's the view of Shawn Coleman, past head of the Cannabis Business Association and current boss of his own firm, 36 Solutions. These days, he's lobbying on behalf of Vicente Sederberg, a law firm whose principals are Brian Vicente, a primary proponent of Amendment 64, which allows Colorado adults 21 and over to use and possess small amounts of marijuana, and Christian Sederberg, who represented the A64 campaign on the governor-appointed task force that recently passed its implementation recommendations to the Colorado legislature.

Shawn Coleman.

Coleman points out a factoid that appears in the Post story, albeit in a less-than-prominent place: 30 percent of all new businesses in any industry fail within the first two years.

"That parenthetical reference to the failure rate of new businesses -- you're talking about 30 percent of businesses entering an already mature and established market," Coleman says. "So you're not really comparing apples to apples when 100 percent of this industry is new.

"If you really want to start the clock at the passage of the first marijuana code in 2010" -- HB 1284, which established rules and regulations for the MMJ biz in Colorado -- "you're really talking about businesses that are just turning three. And then think about the completely out-of-the-ordinary things the industry faced with the drafting of that bill."

Amendment 20, the 2000 measure that legalized medical marijuana in Colorado, "was silent about whether there should be retail distribution of cannabis," Coleman points out. "So to get the bill passed, the general assembly was responding to an industry that was already in place. And while some members who voted for the bill thought the industry was a good idea and wanted to support it, plenty didn't feel the same way -- which is why some parts of that law were designed to create some contraction."

Chris Romer.

Indeed, HB-1284 co-sponsor Chris Romer made no secret of his desire to reverse the growth rate of MMJ businesses with the legislation. In November 2009, he said, "I fully expect well over 50 percent of the dispensaries will go out of business."

By that standard, the industry as a whole is actually doing better than anticipated at this stage of its development. In Coleman's view, 30 percent of the business losses since 2010 "are related to market forces," with the additional 10 percent "by design."

Of course, the causes of death for assorted dispensaries vary widely.

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