Colorado infused products licenses skyrocket as MJ companies diversify

By John Schroyer

The number of licensed infused cannabis product manufacturers in Colorado has exploded in recent years, state records show.

The surge reflects Colorados lack of business license caps, a resulting oversupply of marijuana, and retailers and growers diversifying into new products to boost margins in one of the nations most competitive cannabis markets.

The statistics tell the story of businesses branching into edibles and extracts to stay competitive. Its also often cheaper for these retailers and growers to make their own products for sale versus buying them from another vendor.

In one 24-month span between December 2014 and December 2016 the number of marijuana infused product manufacturer (MIP) licenses shot up 157% on the recreational side and 61% on the medical side. The number of recreational MIP licensees went from 92 a little over two years ago to 236 as of December. Licensees on the medical side went from 158 to 254.

And the license category is still growing. As of Feb. 1,the number of rec MIPs had increased to 246, according to the Colorado Marijuana Enforcement Division. Medical MIPs stayed the course.

Diversification

Edibles makers say theyre seeing more competition from startup companies trying to break into the space. But several longtime retailers attribute the license surge to storefronts and growers diversifying.

I think the issue is, you had a lot of rec growers come into the industry that dont have storefronts. Theyre putting the same-old same-old out, so converting (wholesale flower) into an extract is much more viable, said Jake Salazar, founder and CEO of MMJ America. You can make some pretty good margin on that, if you make good stuff.

As a retailer, Salazar is part of that trend. MMJ America began making its own extracts about 2 years ago, he said.

We got a couple of MIP licenses to run our own extracts so we werent third-party sourcing them, Salazar said. When we go buy wholesale, its like, why would we even buy it? Were trying to get rid of our own stuff.

The reason is simple: Colorado allows for vertical integration among different cannabis businesses in a way that many other states do not. That means licensed marijuana retailers can obtain permits to grow marijuana and produce extracts or edibles. (By contrast, Washington state prohibits retailers from growing or extracting marijuana and bans growers from selling directly to consumers.)

MMJ America, for example, has five storefronts in Colorado, four grows and four MIP licenses. The company was founded before rec was legalized in 2012 so, by law, it had to grow at least 70% of the cannabis it sold under the states medical marijuana program.

Numerous recreational retailers which also still cater to MMJ patients possess cultivation operations, partially as a holdover from pre-adult-use legalization.

Many of them have discovered its cheaper to produce their own extracts and concentrates than to buy from another vendor.

If youre making your own concentrate, youre not paying a middle man to make it for you, said Andy Williams, the owner of Medicine Man, another Denver retailer that has gotten a MIP license.

Vertical integration like this has become virtually a necessity for many Colorado cannabis companies, Williams said, because of the industrys competitiveness.

Though Williams isnt stepping into the edibles fray just yet, he wont rule it out. He knows concentrates, which anyone with a MIP license can make, are easier and more profitable to produce because theres far less red tape.

Right now, that market doesnt interest me, only because its ever-changingon regulations, Williams said. It seems to be something that causes more fear than inother areas in the cannabis space, and the changing regulations have a high cost.

Edibles impact

Established edibles companies in Colorado agree theyre seeing heightened competition for shelf space.

Its definitely becoming more competitive, and its just becoming more mature, said Bob Eschino, founder of Medically Correct, which makes the popular Incredibles line of infused candy bars ...