Colorado's Cannabis Industry: From Billion-Dollar Highs to Economic Lows


Just over a decade ago, Colorado blazed a trail by becoming one of the first states to legalize recreational cannabis. The move ushered in a new era of legal weed and sparked a booming multi-billion dollar industry in the state. By 2021, annual cannabis sales in Colorado topped $2.2 billion as dispensaries popped up across the state to meet insatiable demand.

However, the gravity-defying cannabis boom couldn't last forever. After years of rapid expansion and economic gains, Colorado's cannabis market is now going through a harsh comedown. I can speak from my own experience as the general manager of a small vertically integrated cannabis company - I spent most of 2023 closing down our grows, medical dispensaries, and seed company until early 2024 when I myself was laid off. Statewide cannabis sales plummeted 27% in 2023 to $1.6 billion after peaking at $2.2 billion in 2021 according to the Colorado Department of Revenue. Businesses are laying off workers, shutting down operations, and struggling to survive in an increasingly crowded and challenging market across the state.

The Marijuana Goldrush Gone Bust

When Colorado voted to legalize recreational cannabis in 2012, it triggered a kind of modern-day gold rush. Entrepreneurs scrambled to get in on the ground floor of the newly legal weed industry, opening up cultivation facilities, factories, dispensaries and more.

At first, the returns were huge. Cannabis sales brought in $67 million in tax revenue for Colorado in 2014, the first year of legal recreational sales. That number kept climbing, hitting over $335 million in cannabis taxes collected by the state in 2021. When I entered the industry in 2016 during that boom period, and riding the wave of those heady days, it felt like there was no top. But by 2019 you could see the writing on the wall that there was going to be an oversupply issue, precipitating an inevitable market correction as the bubble had to burst.

Crucially, as other states like California, Oregon and Oklahoma legalized recreational cannabis over the following years, it adversely impacted our market in Colorado. The cannabis tourism dollars that initially flowed in began drying up as more localized markets opened elsewhere. Simply put, there were too many players flooding the space in Colorado, leading to oversaturation and plunging prices. Meanwhile, cultivation facilities continued expanding, with the total number of licensed grows in the state hitting over 3,800 by early 2024, according to the Marijuana Enforcement Division—all while demand decreased.

The Perfect Storm Battering Colorado Cannabis.

While oversupply and increased competition were major factors, they were just the beginning of the brutal economic forces pummeling Colorado's weed businesses. A perfect storm of other pressures soon followed. Regulatory red tape and tax issues became a mounting burden. Cannabis companies faced hugely complex compliance rules along with hefty tax rates at the state and local level. As of 2023, the effective tax rate for cannabis cultivators was over 45% after tallying all the various fees and taxes, according to the Colorado Legislative Council. Additionally, because cannabis remains illegal at the federal level, businesses are prohibited from taking standard deductions and write-offs on their federal taxes that other industries can claim.

The price crunch from oversupply only compounded the sting from the high tax bills. According to the Colorado Department of Revenue, the average wholesale price for cannabis flower plunged from around $1,200 per pound in 2019 to just $632 per pound by early 2024.

Another huge problem—competition from the still-thriving black market. Recent estimates from cannabis analytics firm Brightfield Group put Colorado's illicit market at over $800 million in 2023, representing nearly 40% of total cannabis sales in the state.

By 2023, the economic woes sparked over 120 plant cultivation facilities to close down operations in Colorado, far outpacing the number of new grows opening. Layoffs soon followed, with major cultivators and retailers like LivWell letting go over 20% of their workforce.

The Harsh Comedown and Uncertain Road Ahead

While the downturn has been brutally painful for many Colorado cannabis businesses, a market correction was likely inevitable and even necessary to restore balance after years of unsustainable overheated growth and unbridled competition.

In the near-term, we'll likely see more closures, consolidation, and acquisitions as stronger players gobble up weaker ones. In 2024 so far, over 100 cannabis cultivators have already gone out of business in Colorado (Source: Dept. of Revenue). Diversification into new product lines beyond just flower could help companies find new revenue streams. And an overall focus on efficiency, reduced costs, and lean operations will be critical.

But the biggest factor that could determine the future viability of Colorado's cannabis industry is if and when marijuana becomes legalized at the federal level. Statewide cannabis sales in 2023 plummeted to just $1.2 billion, less than half the $2.7 billion peak in 2020 (Source: BDS Analytics). National legalization would open up interstate commerce, regulating the market more efficiently while allowing Colorado's quality growers and products to be sold across state lines.

Without it, Colorado's market may remain in a precarious state—boxed in by contradictory state and federal laws, unable to realize cannabis' full economic potential, and facing endless waves of fresh competition as new state markets come online.

After riding the highs and now enduring the lows, one thing's for sure: Colorado's cannabis industry is holding out hope that federal reform could help usher in the much-needed comeback story it's OG’s and pioneers deserve.