DENVER — Flowhub has all the trappings of a typical software company, from the cold brew coffee and kombucha on tap at its hip WeWork office space here to its smooth pitching, hoodie-wearing CEO.
But this fast growing, four-year-old company has an unusual customer: Pot shops.
“It’s not Spicoli and his three friends running a dispensary,” said CEO Kyle Sherman, referring to the stoner anti-hero in the movie “Fast Times at Ridgemont High.” Flowhub’s software has processed more than $1 billion in cannabis sales, helping companies track cash and inventory and stay compliant with Colorado’s regulations.
“It’s a real business,” Sherman said.
Now five years into its experiment with a legal, commercial market for the intoxicating drug, Colorado offers a picture of what marijuana legalization might look like in Minnesota and across the country. With licensed companies legally growing tens of thousands of plants, supply has flooded the market, and prices are dropping. As the novelty has worn off, sales have steadied somewhat, too, but Colorado and its cities are collecting millions in new tax revenue. The industry is sprouting new, ancillary firms like Flowhub — think pick and ax companies during the 1849 gold rush — and recruiting more conventional business pros like accountants, software developers and digital marketing gurus.
Advocates of legalization are pushing hard in Minnesota and see an opening after the Democrats’ sweeping victory in the 2018 election, with Gov. Tim Walz ready to sign a bill. The GOP-controlled Senate will hold a hearing Monday on a measure to legalize recreational marijuana, similar to Colorado. Other approaches being debated include the creation of a task force to study the idea or a state constitutional amendment to let voters decide. Advocates say legalization would properly regulate and tax a drug that many Minnesotans use anyway, thereby ending a prohibition regime and keeping people out of jail for low-level offenses.
‘They mirror each other’
Legalization’s opponents, however, say Colorado should not be mimicked. They point to data since voters approved legalization here in 2012 that show an increase in both property crime and violent crime; a nearly twofold jump in traffic deaths in which drivers had marijuana in their system; and heavy use among some adults. Although use among children has actually declined in recent years, according to one survey, high schoolers are showing a preference for products with higher concentrations of tetrahydrocannabinol — the psychoactive ingredient of cannabis known as THC.
“The biggest issue is the commercialization of marijuana,” said Tom Gorman, director of the Rocky Mountain High Intensity Drug Trafficking Area. His team falls under the federal Office of Drug Control Policy and is focused on enforcing federal law, which says marijuana is illegal — encapsulating the plant’s uncertain legal status in Colorado.
“If you look at the history of tobacco and the more recent story of marijuana, they mirror each other,” he said. “You get health claims. You get advertising,” and thus, more customers.
Coloradans appear to harbor few regrets, however. Colorado continues to be one of the fastest growing states in the country, and Denver’s skyline is lit up at night by construction cranes and new towers for its booming economy, which is expected to add more than 53,000 jobs this year, the vast majority of them unrelated to cannabis.
The march of marijuana
More than 30 states and the District of Columbia have legalized marijuana for some medical purposes or for recreational use or sales.
Source: NORML, Star Tribune reporting. Graphics by Eddie Thomas
The rest of the country is warming to legalization, too, with nearly two-thirds of Americans saying they favor it in a 2018 Gallup poll. So far, 10 states have passed the most expansive recreational marijuana laws.
In Washington, Sen. Cory Gardner, R-Colo., is pushing a proposal to allow each state to determine its own approach to marijuana enforcement. President Donald Trump said he will likely sign it if it passes — a step advocates say would lead to a new phase of growth.
Many Democrats running to replace Trump, including Minnesota Sen. Amy Klobuchar, favor legalization or allowing states to decide.
‘Structure to the process’
Nate Fete learned management at a car rental business, but now the 200 workers he oversees are cultivating 30,000 cannabis plants inside a 140,000-square-foot warehouse in an industrial area of Denver.
Fete works for LivWell, which is a vertically integrated firm from seed-to-sale, in possession of 100 strains of cannabis in their seed library, plus tightly held fertilizer recipes and growing techniques. From its massive growing operation, which has the rich aroma of skunky cannabis, the product is shipped to its 16 Colorado retail outlets. Each plant, starting from the tiny clones, is electronically tagged so that the company and Colorado regulators can track them.
He cautioned that cannabis can be unforgiving, and that states like Minnesota should expect a steep learning curve.
“We’ve gotten rid of the ‘plant whisperers’ and brought structure to the process,” he said.
Colorado DUI citations
Citations issued for marijuana impairment* by the Colorado State Patrol.
*Based on trained trooper perception; may not reflect results from toxicology tests.
SOURCE: Colorado State Patrol
In another warehouse district of Denver, Keef Brands’ bottling operation is ramping up for its busy season — April 20, an international day of marijuana protests and events.
Keef makes colas, root beers, energy drinks and other cannabis-infused products. Most have 10 milligrams of THC, which is at least twice as much as needed for new users to feel the intoxicating effects. They also make a 100-milligram bottle, which they liken to a bottle of vodka.
Beverages offer consistency — each sip will have the same amount of THC — while also giving consumers the feeling of a social lubricant akin to sitting around and drinking wine or beer with friends.
For Dave Young, the Adams County district attorney northeast of Denver, this normalization and corporate ambition are some of the problems with legalization. “We’re sending an image to kids that marijuana is OK,” he said.
He brings up a favorite data point that troubles opponents: Colorado has more pot stores than Starbucks and McDonald’s combined.
Much of the data remains a matter of intense debate across Colorado. The number of traffic fatalities involving motorists with cannabis in their system climbed to 139 in 2017, up from 75 the year it became legal. But trace amounts of THC can stay in someone’s system for weeks. The same study found that traffic fatalities dropped sharply among drivers deemed legally impaired by cannabis.
A cultural shift
For now, marijuana remains illegal to consume publicly except for a handful of spaces, but the industry is pushing for a law to allow public use in licensed places, like bars for cannabis. But even with the current public prohibition, some Coloradans like software CEO Sherman say legalization is changing the state’s social culture; he recalled a recent bachelor party that was markedly relaxed because the groom’s pals chose cannabis over beer and liquor.
At Green Dragon in Denver, Jason Hill is a “budtender,” as retail clerks are called. Asked whether there’s such a thing as too much cannabis for some consumers, Hill said: “I smoke pretty regularly and I’ve got a job, an apartment and a girlfriend.”
Erich Hennig, 45, lives in the tiny town of Dolores in southwest Colorado but is originally from White Bear Lake. He runs a small business bringing internet service to rural areas and has many elderly acquaintances who moved to Colorado to consume cannabis. His message to his fellow Minnesotans about legalization: “You don’t have to be afraid of this thing.”
The LivWell motto is displayed on the sign outside its flagship retail outlet: “Enlightened Health.”
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Perhaps because of its origins selling cannabis designed for medical use, many industry insiders continue to think of themselves as working in the health and wellness sector, even though the drug’s health claims are largely unproven. Inside the LivWell store, after you check in and have your ID scanned, you can buy an ounce of “Jet Fuel Sativa” for $60 before taxes, comprising 15 percent Colorado and 9.81 percent Denver levies. Even with the taxes, it’s far less than what black-market customers once paid. Customers can join a loyalty program that provides a $5 credit for every $100 they spend on topicals, transdermal patches, suppositories, bath balms, snickerdoodles, gummies, chocolates, coffee beans and lollipops.
For all the hoopla, however, cannabis remains a small part of the state’s economy. Tax revenue, while substantial, is less than 1 percent of state revenue, and the high cost of regulating a new product should dampen hopes for a revenue windfall. Roughly three out of five Colorado jurisdictions have elected to ban cannabis stores.
Marijuana taxes, license and fee revenue increases in Colorado
*Through Jan. 2019.
Source: Colorado Department of Revenue, Marijuana Enforcement Division
Mixed findings for kids
Ashley Kilroy is Denver’s top marijuana regulator. Her office has spearheaded an ad campaign aimed at keeping kids off cannabis.
According to a 2017 survey, the number of Colorado kids who have used marijuana or use marijuana regularly has declined slightly since legalization. But researchers have found a worrisome trend among children who use cannabis — they are using high concentrations of THC, the effects of which are not well known.
In a 2018 report, Rachel O’Bryan of the group Smart Colorado noted that companies can introduce products without prior approval from regulators, leading to more potent and stealthier forms of THC. More than a third of high school marijuana users get their THC from a technique called “dabbing,” which is a little like the crack of THC. Another 20 percent of students vaped, while about 35 percent consumed edibles.
As a result, O’Bryan concluded, “The actual consequences of legalization on kids may be hidden far below the surface of surveys.”
Kilroy said the conclusion she draws from Colorado’s experiment is that many of the loftiest claims of supporters and darkest warnings of opponents have not come to pass.
Her point: Life in Colorado goes on much as before, albeit with the occasional whiff of cannabis on the highway passing a growing operation.