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Competition killing some marijuana dispensaries

October 22, 2010
photo - The Green House in the 1000 block of West Colorado Avenue Thursday, Aug. 5, 2010. Photo by KEVIN KRECK, THE GAZETTE FILE
The Green House in the 1000 block of West Colorado Avenue Thursday, Aug. 5, 2010. Photo by KEVIN KRECK, THE GAZETTE FILE 

Corey Puglisi saw immediate business potential when he started visiting medical marijuana dispensaries for his glaucoma. Customers seemed to be steady, and the cash register always seemed to be ringing.

He wanted in.

“First things first, I wanted the money,” he said. “That’s the same with any business.”

He was one of many would-be entrepreneurs who hoped to start a medical marijuana dispensary in Colorado Springs before a state-wide moratorium started this summer.

But his business, like others, didn’t get much further than the dreaming stage.
Other medical marijuana businesses have already gone under.

Tanya Garduno, director of the Colorado Springs Medical Cannabis Council, said she knows of 12 dispensaries that have gone  out of business in the past two months.

City sales tax licenses indicate that the number could be higher. Through the end of June, the city had 230 medical marijuana related-businesses with active sales tax licenses. At the end of September, that number had dropped to 188. In unincorporated El Paso County, there are 17 dispensaries with land-use permits. (Click here for a map of local dispensaries.)

 “People who jumped in thinking ‘If I just open my doors, I’ll be OK,’ are finding out that they made a mistake,” Garduno said. “Patients have little tolerance for bad medicine or bad customer service. They know there is always a better place they can go.”

Even some places that are running a sound business are having a tough time, she said.

There’s a lot of competition, and changing regulations mean dispensary owners are having to spend money to stay in compliance.

“I haven’t spoken to any center owner who has even come close to turning a profit,” she said.

Voters approved the use of medical marijuana with Amendment 20 in 2000, and dispensaries started popping up in Colorado Springs about five years ago. But the main growth, and controversy, of dispensaries has happened in the past two years. Since then, state and local governments have imposed numerous restrictions on medical marijuana businesses, including where they can operate and how much marijuana they can grow. A new state law required businesses to register with this state this summer. In addition, some towns and cities  have considered banning dispensaries altogether. The Nov. 2 election will decide whether dispensaries will be allowed in unincorporated El Paso County, Fountain and Ramah.

Puglisi thought he was ready to be a dispensary owner. He hired a lawyer to help him start a business and make sure he was following the laws. Puglisi searched for a place to rent and started taking classes on growing marijuana.

But finding a place to lease was tough. Then, the potential costs started to climb. At first, he thought he could open a dispensary on $20,000. But when he learned of the costs for taxes, fees and equipment, his calculation got him closer to about $50,000 to stay in business for the first year. He had a way to get the money, but then he started learning more about the changing laws and regulations.

“In the end, I decided to wait,” he said. “I want to let them iron out all of the laws so when I put my foot into it, I’ll have a steady beam to stand on.”

The Colorado Springs Medical Cannabis Council estimates there are 12,000- 15,000 medical marijuana patients in Colorado Springs. Assuming that number is on the high end, that would equate to fewer than 90 patients per dispensary.

That’s probably not enough customers to support the number of dispensaries in Colorado Springs. Dispensaries report that it takes about 250 to 350 patients to stay in business, said Elizabeth Robinson, president, founder and CEO of Grow Room Communications , a Denver public relations firm targeting the medical marijuana industry launched last month.

“In the end, only the strong will survive,” Robinson said. “Those are the dispensaries that will overpower and beat out the little shops.”

She said dispensaries need to do more than just sell marijuana to stay in business. They must have a good business plan that includes building their brand and trust with customers and the community.

“It’s a business,” Robinson said. “It’s not something where you open the door and wait for people to come in. At first that was all they needed, but not anymore.”

Even established dispensaries in the city have seen hard times as competition has grown. Michael Lee owns Cannabis Theraputics, the longest-running dispensary in the city. Before competition grew last year, he estimated that he had 1,600 patients. Now, he said he has about 200 , and he has to fight for those.

He said competitors stand outside his business handing out flyers for their dispensaries.

He said he’s been robbed twice recently, with thieves stealing more than 20 pounds of his product. He blames rival dispensaries that don’t have enough of their own  to sell.

“I’m thinking of getting out of this business,” he said.

Contact the writer at 636-0274.

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