Will Denver Put a Cap on Pot Shops and Grows in the City?

In the middle of a four-month extension of the 2014 marijuana moratorium that was set to expire on January 1, 2016, Denver City Council is considering all options — including imposing caps on locations, a proposal that at-large council rep Robin Kniech presented on February 22. The Special Issues Marijuana Moratorium Committee, which is chaired by council president Chris Herndon, met yesterday to hear from community members and stakeholders on the issue.

The committee was originally set up to discuss extending the moratorium, which would prevent any new licensing. However, the conversation is now shifting to potentially capping the number of both retail and cultivation facilities at a city-wide level, as well as in certain locations of the city.  In this scenario, medical and recreational grows would be lumped together, and edible manufacturers would not be taken into account. 

Kniech's plan has three components: a city-wide cap on the number of marijuana locations (some viable applications are still in the pipeline), followed by a geographical sub-cap, and then creating a system that allows new licenses when a location becomes available.

The sub-cap would insure that no one neighborhood is over-saturated with pot facilities, like the cluster of warehouses along the I-70 corridor or the stores along Broadway Avenue's Green Mile, which were grandfathered in before council ruled that stores had to be 1,000 feet a part. Exactly how to cap the number of locations is still under discussion, but it could be based off of zip codes, for example; capping council districts isn't an option because the boundaries of districts are subject to change.

Licensees would be able to move around as long as they are in good standing and going to a location that is designated for a marijuana facility.

If an existing location under the proposed cap were to become available because a retail or grow went out of business or lost its license, a new business could take its place by winning an annual lottery, suggested Kniech. But only for pre-qualified operations: "Serious applicants are screened and all the serious applicants have an equal opportunity to be selected in the lottery," explained Kniech. 

Switching the conversation from licenses to locations would mean businesses with medical licenses could still be converted to recreational licenses, a key component of the proposal and something Kniech has encouraged the council to consider.

"We have a significant tilt toward medical licenses right now," said Kniech. "Both are existing locations, but most of the pending applications we have in the pipeline are for medical facilities . . .. One of the reasons we're focusing on locations is we actually don't want to stop individuals from converting to retail or recreation. We think that that is a better market, it is more regulated and frankly, it pays sales tax. So if a patient needs medicine, there are adequate places to do that."

Kniech argues that it's locations, not licenses, that have the most impact on communities; a recreation grow smells the same as a medical one. The proposal actually assumes that a smell ordinance will be in place when the moratorium ends; council is tackling the odor issue in April. And whether a location has one or four licenses, the proposal would still limit that location to a marijuana business instead of other opportunities that may contribute to an area's economic development. 

At the meeting, Michael Elliot, executive director of the Marijuana Industry Group, said he agreed with the caps as a long-term solution to deal with the over-saturation problem. Then again, he doesn't think the lottery system will work: He told councilmembers that he's seen those tried in other places, and they often end in litigation. 

Starting a pot business is very expensive, usually several millions, and a lottery wouldn't help ganjapreneurs to enter the marketplace safely or inexpensively. "There is an issue here of how much money do you have to invest in that process to take the chance on a lottery," Elliot pointed out. "People are wanting to buy licenses so that they have that certainty about it."

He also said he worries that if licensees aren't allowed to move locations — which Kniech's proposal currently allows — licensees could be at the mercy of the landlords. That might make this more of a zoning issue, Elliot added.

Mara Owen, president of the Overland Park Neighborhood Association, told councilmembers that she also thinks the lottery would be unfair. She regards the marijuana businesses along Broadway's Green Mile like any other business, and believes there are more to come. "None of them are failing yet," said Owen. "The natural market hasn't brought them out of business yet."

Attorney Christian Sederberg, a founding partner of Vicente Sederberg LLC., a firm that has been working on pot regulations since 2010, said Arizona's attempted lottery system destroyed that state's industry for four or five years. Although he hasn't seen a lottery work, "It doesn't mean it can't be done right," he said to Kniech. "The lack of certainty is what I would definitely want to overcome with your proposal."

When it comes to working with the community, Sederberg puts the onus of responsibility on the businesses themselves, and said he hopes they will rise above the occasion: "I think the business community has a significant responsibility in this."

Sederberg plans to gather brokers and lawyers who represent a majority of the businesses in areas where marijuana facilities have caused issues to talk about what constitutes "ethical business practices," he told the committee, because it's bad business to go into areas and not get community feedback. He said he wants to see businesses working with the communities to "get ahead of the smell and be there at the table to fix things now," instead of waiting for a provision. 

Sederberg has suggested a "sunset provision" that would trigger Denver City Council to revisit the regulations, potentially allowing more locations based on Denver's rapid growth.

Edibles are not included in Kniech's proposal, despite accounting for a significant amount of youth consumption in the state, according to Gina Carbone of SMART Colorado, a marijuana public awareness group. Carbone told the committee that SMART Colorado wants to see the marijuana footprint reduced and edible manufacturing facilities capped like other facilities.

Carbone said that Colorado recently moved up to the number one spot for youth use in the nation for 12-to-17-year-olds and 18-to-26-year-olds, with 22.5 percent of eight graders having admitted to using pot in that last month. "We are concerned that by not capping the MIFs we will encourage that industry to grow even more, and marijuana edibles already comprise half of the marijuana market in colorado," Carbone added. 

According to the Denver Department of Excise and Licenses, last year a total of 255 applications for the four types of marijuana licenses were submitted to the city, under the expectation that the moratorium would end on January 1 as originally planned; 68 of those applications are for new locations.

The Marijuana Moratorium Committee will meet again at 3 p.m. Monday, March 7, at the Denver City and County Building; chair Chris Herndon will present his own proposal then.