What vending machines say about Colorado's cannabis industry
It's more about innovation than automation
Welcome to the first edition of Regulated State — a newsletter hyperfocused on Colorado’s cannabis industry and its burgeoning psychedelics sector.
NOTE: Please do read past the lead story for an important update on medical cannabis legislation currently being debated at the Legislature.
I’m Jonathan Rose, the editor who built the cannabis beat at the Denver Business Journal, and I’m excited to publish this biweekly newsletter that looks beyond the Denver metro and across the Centennial State (you know, the one that did it first).
As I did my due diligence over the past months, gauging the appetite for a newsletter like this, the No. 1 question that came up was “Who is your audience?”
Well I can’t say for sure — the response to the first few newsletters should give me an indication. But let me make this clear: I want EVERYBODY.
I think there are stories happening in cannabis every day with mainstream crossover appeal — I proved it at the DBJ, and I hope to do it again here.
Oh! And feel free to send me any story ideas, pitches, tips, etc. firstname.lastname@example.org or through Substack.
Thank you for reading/subscribing (and please forward to your friends).
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What Terrapin’s new vending machine says about the Colo. Cannabis Industry
When Terrapin Care Station recently unveiled what it calls the “first-of-its-kind cannabis digital vending kiosk" at its Aurora location, even Gov. Jared Polis tweeted about it.
The technology behind ACE (Automated Cannabis Experience), built with 50-year vending-machine vets BMC Universal Technologies, is the result of five years of development. It scans IDs; it accepts payments; and it labels and dispenses cannabis products, all in plain view. And it can hold up to 1,152 products, according to Terrapin Care Station.
But it also tells a bigger story about a Colorado cannabis industry that is slogging through probably the most challenging moment in its young life.
The big picture: The cannabis industry has entered a new reality, and nobody’s quite sure exactly what to make of it: Rock-bottom wholesale prices and dropping retail sales after a pandemic boom have left cannabis companies scrambling. Multistate operators are reducing their footprint nationwide, VC has dried up, headlines are apocalyptic.
Have the reports of weed’s death been greatly exaggerated? What local cannabis companies and analysts are telling me, though, is that this is simply an inevitable market correction — and one that was likely on its way no matter what.
Case Studies: While MSOs and VC-backed startups are laying workers off by the hundreds, Colorado retailers — and even some cultivators — are using this opportunity to innovate, and some are even expanding.
Terrapin Care Station: The Boulder-based, six-store chain recently pulled out of Michigan due to what it sees as “a serious turn,” in that state’s industry. Some 70% of Michiganders were still buying their weed on the black market as recently as late 2021, according to one study.
Terrapin employs 130 workers in Pennsylvania where it’s a cultivator, and is the only producer found on every Pennsylvania dispensary shelf, Vice President of Communications Peter Marcus told me. And it’s looking to expand with two more stores right here in its home state.
The ACE vending machine isn’t a way to cut employee headcount, Marcus said. There have been no budtender staff cuts, he said; rather, ACE is just one more way to attract customers to its stores.
It’s also a potential future money-maker, since it’s a Terrapin-developed machine that can be sold or licensed out.
And data — the currency of the new millennium — will be one way the vending machine is helping the chain adapt to these challenging times.
“We’ll learn from the type of customer who uses it,” Marcus said, pointing to sales, frequency, what type of person wants to get in and out of the shop with minimal interaction.
Native Roots: “We’ve become very good at forecasting,” Native Roots Chief Sales Officer Denise De Nardi told me.
The 20-store, Colorado-headquartered cannabis behemoth onboarded a new enterprise resource planning software system and brought on a small group of consultants to help build what De Nardi calls “the foundation” of Native Roots’ new approach.
They’ve since boosted the percentage of customers under the age of 30 by 10 points (from 28% to 38%). They’re developing new products and brands for other customer segments, and ensuring their store inventory meets neighborhood demand.
And they’re doubling down on “experiential retail,” experimenting themselves with different forms of education and technology.
“It would’ve hurt us if we would’ve just continued to produce and push to the stores at the same level,” De Nardi said. “We’re really aligning product to customer demand.”
Native Roots is also looking at adding more stores to its Colorado footprint.
Veritas Fine Cannabis: Cultivators are arguably getting hit the hardest by this downturn, but that’s not stopping high-end grower Veritas Fine Cannabis from innovating.
“It’s forcing us to be a much better company and a much better brand,” Veritas President Jon Spadafora told me. “We’ve really stripped it down to the things we know will generate traffic.”
Veritas, known for its sponsorships and partnerships, has had to cut back on those types of promotions. Instead, it’s talking to retailers to figure out what draws the types of customers who will buy high-end cannabis.
It’s doubling down on its fourth annual ski giveaway partnership with Golden-based Icelantic. Customers who purchase Veritas cannabis receive a code they can enter for a chance to win a pair of Icelantic skis or a snowboard each Friday. The companies are giving away both.
It’s not only drawing consumers to cannabis retailers and upselling products, but it’s providing invaluable data about Veritas’ core customer, and how they can be better reached. It’s also strengthening Veritas’ relationship with retail stores, according to the company.
“If anything coming out of this crappy market, it’s deepening our relationships with the stores we do the most business with,” Spadafora said. “I think at the end of the day that’s a positive thing.”
The manufacturer’s take: “I think innovation on the product side is important so we’re attracting new consumers and not just fighting the race to the bottom from a price perspective,” Wana Brands Chief Marketing Officer Joe Hodas told me.
The analysis: “Colorado is undergoing a very difficult market transition as cultivators — and manufacturers to a lesser degree — react to what is oversupply in the wholesale market and rapidly declining prices that has resulted in a decline in the number of active adult-use cultivation licenses,” Vicente Sederberg Director of Economics and Research Andrew Livingston told me.
He pointed to the fact that the number of retail licenses had increased in 2022 while the number of cultivation licenses dropped slightly. And any number of those licenses could be inactive and/or up for sale.
Colorado went through something similar from 2018-2020, Livingston said. “But that didn’t occur when we were potentially facing a global recession, inflation and a significant capital crunch.”
*MED data provided by Vicente Sederberg
Truman Bradley, executive director at Marijuana Industry Group, said he sees some of the larger companies experimenting with returning to a vertical-integration model and expects various levels of success.
“I think a lot of directors of retail or general managers are having a come-to-Jesus moment about who are they, who are their customers and what do their customers want,” he told me.
Social Equity Spotlight: Growzillas5280
Husband and wife duo Rayshawne and Shonda Thomas run Growzillas5280 —a social-equity licensed cultivation facility based in Moffat. Rayshawne took some time to chat with me over email about their company. The answers have been edited for clarity, style and brevity.
Image provided by Growzillas5280
Tell us about your business. Growzillas5280 LLC is a cultivation company providing cannabis products located in Moffat, Colorado. We are part of the largest collection of independent farmers in the United States located on 420 acres named “Area420.” This cannabis business park is zoned for licensed commercial grows creating the most amazing sun grown native-soil flower in all of Colorado.
What's the No. 1 lesson you've learned as you've gone through the licensing process to enter the regulated market? Being patient and forming great business relationships is the No. 1 lesson I’ve learned in this industry, having experienced the cannabis plant before legalization provided me many lessons in life. These early experiences motivated me to study agriculture, soil science and cannabis like never before. These new skills allowed us to launch Growzillas5280 with my wife and supporting business partners.
What is Colorado doing right, and what could it do better, when it comes to the state's cannabis industry? This is a tough one. Currently where the industry stands, there’s a huge need for the SAFE Banking Act — capital is key. Being a player in the social equity movement, I see first hand entrepreneurs wanting to operate within the space but lacking capital and technical assistance.
On the flip side, The Cannabis Business Office is a newly created office from Senate Bill 21-111 and funded by the Marijuana Tax Cash Fund. The office works to create new economic development opportunities, local job creation and community growth for the diverse population of Colorado. The CBO provides these resources specifically to Marijuana Enforcement Division-licensed THC-touching companies.
The technical assistance will include things like webinars, training modules, personalized one-on-one consulting, and other support. Access to capital will be offered in the form of microloans and grants for qualified applicants. We could use more programs like this and a revamp of the original social equity House bill.
What's your big goal for 2023? The big goal is to create a more heightened awareness around social equity. Getting more of the major players on board is a driving factor to an industry that is being more brand conscious when making purchases. We see a future of a more diverse industry with social equity.
Special social equity event: A voter registration drive will be held Friday, Feb. 17 (that’s tomorrow as of today), at the Grant Street Native Roots. It’s the result of a partnership between the dispensary chain and advocacy organization The Color of Cannabis.
When: Friday, Feb. 17, 4-6 p.m.
Where: Native Roots: 500 Grant St., Denver
Legislative and policy roundup
Boulder may be getting a hospitality establishment in the future, should the City Council accept the recommendations of the city’s Cannabis Licensing and Advisory Board (CLAB). But cannabis advocates may not love what they see.
The board, made up of seven members, including two from the cannabis industry, on Feb. 6 submitted its draft recommendations for opening a hospitality establishment in Boulder. They include, among other things:
Amending the marijuana provisions of the Boulder Revised Code so the city can opt in to the state’s hospitality laws
Opting out of mobile hospitality or “bringing your own” establishments
Opting in to allowing retail marijuana hospitality and sales businesses, with conditions
Allowing cannabis flower, beverages and topicals to be consumed (and, presumably, sold) at Boulder hospitality establishments
Forbidding edibles and inhalable concentrates at these establishments
Making the minimum age of patrons at these establishments 25
“This is a very specific Boulder policy but I think that a lot of people in the Front Range probably have a lot of interest in the way this plays out,” CLAB member (and co-founder/CEO of Green Dot Labs) Alana Malone told me.
Written comments from the public will be accepted until Feb. 20 at email@example.com, while virtual public comments will be accepted at the March 6 City Council meeting.
UPDATE: SB23-081 was killed by committee late Thursday, Feb. 18, without giving proponents an opportunity to testify. Keep reading for more about the legislation.
"It is unconscionable that dark money interest groups continue to use children as political ammunition to undermine democracy to preserve their donors’ profits and drive inequities in cannabis patient access,” Kevin Gallagher, executive director of the Colorado Cannabis Manufacturers Association said in a statement.
A battle over a medical cannabis bill that would roll back some legislation passed over the past few years has embroiled advocacy groups and is in committee today. SB23-081 would come close to curing what advocates say has been a medical-cannabis killer and the driving force behind a massive drop in the number of registered medical cannabis patients and doctors.
From November 2021 to November 2022, there was a 17% drop in medical cannabis patients, according to MED numbers, and advocates say the cost of getting a medical card has increased from about $250 to around $1,000 as approval requires the OK of two doctors — doctors who are forced to break the law by writing “prescriptions” (thus breaking the law by prescribing a federally illegal substance).
Advocates say that the number of cannabis clinicians who can approve a patient for medical marijuana in Colorado has dropped by at least 28% since Jan. 1, 2022.
“The sponsors in the Senate are working pretty much around the clock to address everyone’s concerns,” Rep. Matt Soper, who is a bill sponsor on the House side, told me tonight.
Soper said he’s just waiting to see what happens in the Senate.
“We have to remember that the entire cannabis industry in Colorado — all the jobs, tax money, tourism, all of it — is because of medical cannabis patients,” Martha Montemayor, the director of Cannabis Clinicians Colorado, told me in an email. “Medical patients begged, pleaded, screamed and persisted for over three decades until we finally approved medical marijuana in Colorado in 2000. To throw those patients away now as either ‘tax dodgers’ because they don't pay the recreational taxes, or because some reckless teenagers abused cannabis is both insulting and immoral, IMHO.”
Native Roots has dropped a new apparel line — The High Collection — which you can find at stores, or here. It’s “going gangbusters,” according to the company.
Is your company dropping new products? Hmu and lmk. firstname.lastname@example.org