Balancing Colorado's marijuana production with demand a tricky equation

By Megan Schrader Updated: September 2, 2015 at 7:27 pm • Published: September 2, 2015 0

DENVER - Colorado is on track this year to produce about 100 metric tons of marijuana - the weight of about 15 average-sized African elephants - in licensed pot grows for both medical and recreational purposes.

A study estimated the demand for marijuana in 2014 among in-state and out-of-state Colorado buyers was closer to 130 metric tons of marijuana.

It's the task of the Marijuana Enforcement Division under the Colorado Department of Revenue to ensure the amount produced is about equal to the market demand.

A difficult task, with some cautioning that the state has licensed too many new grows and is headed to overproduction, and others arguing the state has limited production too much and kept marijuana prices artificially high.

Any excess demand is likely covered by a combination of caregivers who grow plants in a gray market for their medical marijuana patients, home growers who legally can have up to six plants and the black market that sells marijuana illegally outside the state's intricate regulatory framework.

The Department of Revenue is in the middle of making new rules for the industry - two thick books of proposed rule changes were released to the public late last month. Among the changes are several measures the state expects to help right-size the industry.

"It's a very delicate balance," said Ron Kammerzell, director of enforcement for the Colorado Department of Revenue. "And not only do we want to avoid overproduction, we want to avoid underproduction."

Too much pot on the market will driver lower prices and lead producers to find an alternative outlet such as the black market in other states.

Not enough pot will drive up the price and push consumers to seek black market options in Colorado.

"We're kind of trying to thread the needle," Kammerzell said.

A study conducted by the Marijuana Policy Group (a partnership between the University of Colorado and BBC Research and Consulting) estimated that in 2014 Colorado users demanded about 121 metric tons of marijuana. Out-of-state users came to Colorado looking for another 9 metric tons.

That year, Kammerzell said the state's legal marijuana grows produced about 67.2 metric tons.

Mike Elliott, executive director of the Marijuana Industry Group, raised concerns at the public rule-making hearing Monday that not enough is being done to prevent overproduction, noting that the state has licensed more than 200 new grow facilities that have not begun reporting.

"There's no more available demand in Colorado," Elliott said.

Each grow begins with a license for 3,600 plants so another 784,000 marijuana plants could come on line. The amount of marijuana that each plant produces varies widely.

"The integrity of Colorado's program is on the line," Elliott said. "We have always been advocating for a responsible, controlled, slow implementation."

If too much pot is produced and it begins to leak across state lines or lands in the hands of children, the federal government has said it will intervene and shut down the state's experiment with a federally banned substance.

It's in the best interest of his organization's members - a cross section of the marijuana industry - to have a well managed supply.

While Elliott thinks the new rules don't go far enough, Dan Anglin with the Colorado Cannabis Chamber of Commerce said the new and proposed rules will keep supply artificially low and prices artificially high.

"It's anti-American and anti-competition," Anglin said. "No other business has restrictions on production."

Anglin said the market will correct itself if it's freed.

If prices go down, Anglin said the extra marijuana won't go out of state. Instead businesses that now use lesser parts of the marijuana plant like stems to produce infused products will instead buy the more expensive flower for that purpose.

Kammerzell said there are a number of changes proposed in the new rules to help the state get a handle on supply.

There are now three tiers of licenses for marijuana grows: 3,600 plants, 6,000 plants and 10,200 plants.

A proposed change would create a new first-tier of 1,800 plants. All new grows would start at this level. Under existing rules a grow can move up to a new tier only after proving it sells 85 percent of what it grows.

But a new rule also would allow the Marijuana Enforcement Division to reduce a grow's authorized plant count if it doesn't sell at least 70 percent of what it grows.

A new top tier would be labeled at more than 10,200 plants and aims to allow multiple grows owned by the same person to be consolidated.

Anglin, who owns two grows across the street from one another, said he likes that rule in principal but in practice he would have to reduce his plant count if he consolidated.

"I'd like to be more efficient," Anglin said. "I'm concerned that it's going to negatively impact my business."

Finally, Kammerzell said the new rules put growers on notice that eventually they will be held accountable for how much marijuana is produced (the actual flower of a plant that contains the drug THC) rather than how many plants they possess. That will be a big change, Kammerzell said, but one that will allow greater control ofproduction.

"It's always a concern to us that we have overproduction," Kammerzell said. "But with the new rules we have mechanism in place to ratchet back the production."


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Twitter: @CapitolSchrader

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