IEDC on How Economic Developers are Responding to Legal Marijuana

By Eli Dile

The production and sale of recreational marijuana is now legal in Colorado, Oregon, Washington, and most recently, Alaska. They likely won’t be the last.

At this point, most are familiar with the arguments from both sides of the legalization debate. Advocates contend legalized and regulated marijuana will displace the black market, and bountiful tax revenue will pour in. Opponents fear it will only increase crime and erode quality of life. Regardless of where you fall on the debate, legal marijuana is a growing reality and big business in many communities.

Economic developers and local governments in these four states are taking very different approaches to engaging with legal marijuana. Some counties have prohibited its retail entirely. Others have wholly embraced it, such as North Bonneville, Wash., which earlier this year opened the first municipally owned cannabis store in the country. Economic developers are learning how to live with, regulate, and prosper from the country’s newest industry.

Cash is king

Ever since November 2012 when Colorado became the first state to legalize marijuana, all eyes have been on the Centennial State. One of the most obvious benefits has come from additional tax revenue.

“If you’re looking at it like an economist, cash in, cash out, it’s obviously been a success,” said Tom Clark of the Metro Denver Economic Development Corporation.

However, Clark’s enthusiasm for legal marijuana ends here.

“If you ask me if I’m glad we got legalized marijuana, the answer is ‘no.’ Almost every one of us came out publicly against it,” Clark said of himself and other economic developers.

In many ways, marijuana is just another form of retail, one that economic developers are happy to continue a hands-off approach to. “The industry represents a very small employment footprint. It doesn’t have a huge upside,” Clark pointed out.

For many, the risks associated with marijuana retail outweigh its reward. That’s because business must be done entirely in cash.

“This is an industry that’s full of people who are not accountable for how their money is handled,” Clark said.

It’s hard enough for the average small businesses to get a bank loan. As one can imagine, the barriers to financing for a cannabis business are especially high. This is because the drug is still illegal in the eyes of the federal government. But despite assurances from the Obama Administration that neither the Treasury or Justice Departments will target banks that work with the cannabis industry, mainstream financial institutions refuse any engagement with them.

Naturally, safety concerns abound whenever that much money is in one place. Armored cars idling in front of dispensaries are not uncommon sights in Colorado.

A mixed blessing for Denver’s economy

Legal marijuana has had a tangible impact on the economy of Denver, one area in particular being real estate. For years, numerous dilapidated, unmarketable warehouses sat vacant throughout the city – many in distressed neighborhoods.

“That all disappeared within the last two years,” said Clark. “It was like a gold rush to acquire those properties.”

Entrepreneurs quickly realized they could acquire these buildings at a competitive rate and turn them into grow houses. Denver now has a warehouse vacancy rate below 5 percent.  Even speculative marijuana warehouses now are popping up around the city.

However, these properties are becoming so ubiquitous that other businesses are struggling to find office space. Furthermore, former grow houses often suffer from water damage, making them difficult to repurpose.

Perhaps the biggest benefit for Denver was realized in the form of demographics. A greying city, Denver now ranks among the top U.S. cities for attracting millennials. Much of that shift is attributed to legalization.

“We do a lot of focus groups with millennials,” said Clark. “We found that legalization sent the message that we’re an open place. We talked to people who said, ‘You know, I don’t smoke weed, but it shows you’re willing to take people with different viewpoints, and I like that. And that’s why I came here.’”

What are the site selectors saying?

Immediately following legalization, a big question for Tom Clark and Metro Denver EDC was: What perception will expanding and relocating companies have of the new Denver?

“We spent a lot of time looking at site selector blogs,” Clark recalled. “A significant numbers said ‘I would be hesitant to recommend Colorado and Metropolitan Denver as a location to my clients, given marijuana legalization.’”

So Metro Denver EDC immediately reached out to existing companies to ask what they could do to alleviate concerns surrounding the new law. Their foremost response: sovereignty over company drug policy. When the Colorado Supreme Court upheld an employer’s right to fire employees who use marijuana (even medicinally), the EDC blasted its email list with the news.

“And that blogosphere just deflated,” Clark said. With primacy over personnel policies legally upheld, business attraction efforts continue unhindered.

Outdoor vs. indoor cultivation

Sustainability is another challenge to the marijuana industry. Though commonly advocated for by the liberal left, marijuana cultivation is, ironically, not very green. Grow houses sap up significant megawatts to provide 24-hour lighting. By some estimates, 45 percent of all new electricity demand in Denver has come from grow houses.

Outdoor cultivation affords growers less control but is better for the environment, and the costs are far lower. For this reason, Tom Hogue predicts an economic windfall for Southern Oregon.

“There are very few places where you can grow marijuana outdoors and get a high-quality product,” said Hogue, economic development specialist at Oregon’s Department of Land Conservation and Development. “And one of the best places to do that is in Southern Oregon.”

Marijuana is grown in many places, but Hogue believes Southern Oregon’s climate gives the state a competitive advantage. Coupled with its brand recognition for quality food and beverages and environmental stewardship, Oregon’s crop is sure to stand out, Hogue contends. So far, farmers have been on board.

“We’re very much an agricultural state, and the agricultural folks have embraced it as a new product opportunity,” Hogue added.

Cluster potential

Like many blue collar communities in the 1970s, industrial decline hit Pueblo, Colorado hard. After the steel industry vanished, Pueblo realized its long-term prosperity was dependent on diversification. Now, this town of 100,000 has high hopes for a new product to add to its industrial mix.

“When cannabis was legalized, it brought forth a very unique opportunity that I don’t think most economic developers have seen the possibilities for, and that’s the hemp industry,” said Jeff Shaw of the Pueblo Economic Development Corporation (PEDCO).

A close cousin of the marijuana plant, the legality of hemp has long been in flux, as it has trace elements of THC but not enough to get high from. “What’s nice about the hemp side is it gets us out of the debate,” said Shaw. “We’re looking at it from a pure manufacturing perspective.”

Indeed, hemp is a tremendously versatile plant with a variety of commercial uses. “The manufacturing side is vast,” Shaw notes. “Hemp products have been around for 2,000 years, but when you look at the industries it opens the door to – it’s just about every sector.” That includes industrial and consumer textiles, paper, building and construction, food products, personal hygiene, pharmaceuticals, and more.

The 2014 Farm Bill loosened restrictions around industrial hemp cultivation, permitting growth for agricultural and academic purposes. Currently, 13 states allow hemp cultivation for commercial industrial use.

The new site of CBD Biosciences in Pueblo, Colorado

Hemp offers great potential not only to Pueblo manufacturers but also to its agricultural community. Yields are high, and the product is more valuable than wheat or corn.

“We can grow the inputs locally, turn them into finished products, and ship them out. It’s almost the perfect economic development tool,” said Shaw.

Pueblo’s embrace of hemp recently paid off in a big way. In October, PEDCO attracted CBD Biosciences, the world’s largest hemp oil processor, to Pueblo. For a sense of the company’s footprint, CBD Biosciences will locate in a 193,000-square-foot industrial space formerly occupied by Boeing. The company will employ 163 workers by 2017, with jobs paying an average minimum salary of $41,590 plus benefits. Pueblo secured the project with $4.89 million in incentives from its half-cent economic development sales tax fund.

“I think it’s very realistic to build a strong, strong cluster around, and Pueblo is now in a position to become the leader in hemp manufacturing,” said Shaw.

Regulation

Legal marijuana may sound like a regulation nightmare, but states are finding they already have a regulatory apparatus in place. Liquor control boards have typically taken on marijuana regulations. Though it presents unique challenges, zoning for marijuana retailers is handled in much the same way that bars are regulated. They can’t be located too close to schools, for example, and special considerations are made accounting for the product’s odor, which many find unpleasant.

“I think we’ve done a good job of regulating it,” said Tom Clark of Metro Denver EDC. “At the front end, the [tax] money was used almost entirely to design the regulatory and legal system surrounding it.”

Recognizing that the decision would not be universally popular, when Oregon voted to legalize marijuana, the state gave its counties the option to prohibit retail sale.

But Tom Hogue of the Oregon Department of Planning and Development notes that the concerns surrounding the impact to quality of life that preceded legalization have since evaporated. “It hasn’t been this terrible blight on neighborhoods that some thought it’d be,” said Hogue. “For the most part, it’s just been another business opportunity.”

This has been true even in Hogue’s home town, the conservative-leaning Salem. “The attitude has been ‘We’re a business friendly city, so let’s go ahead and do this,’” Hogue said.

Looking ahead

For now, economic developers generally shy away from the marijuana industry. But, it stands to reason that as more states legalize it, and as its stigma continues to wane, opportunities to recruit investment from suppliers, equipment makers, and bioscience operations will continue to grow.

“All of the processing and packing equipment needed for a grow operation will tend to locate where the growth possibilities are in abundance, and that’s going to be in the states where marijuana is legal,” said Hogue.

In fact, Oregon’s state economic development association recently invited marijuana business suppliers to its annual conference to introduce more economic developers to the industry.

“This is a group of people very comfortable working with breweries and wineries. Part of it is getting them comfortable talking about this business,” said Hogue. “What’s fascinating about it is getting to witness the birth of an industry. How often do you get to see that?”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s