Colorado Cannabis Sales Have Cratered. So Has The Industry's Need For Real Estate

A decade ago, Colorado’s marijuana industry and its real estate footprint were growing like a weed — pun partially intended.

But with new business creation basically halted, mergers gobbling up the area’s smaller players and a burst pandemic bubble, the consolidation faced by metro Denver’s marijuana business in recent years has come for its real estate.

“I have one client just walking away from two dispensaries and about five more about to walk away from their leases,” said John Wickens, founder of Six Chair Blue, a cannabis-focused real estate brokerage based in Denver.

It’s been a year of “nothing really selling or moving,” Wickens said. His company nearly went out of business when weed “wholesale shit the bed” and a major Denver cannabis retailer and its properties went into receivership, he said. Now he has shifted his focus to business brokerage in states like New Jersey and New York where the cannabis industry is at a different, earlier life stage than the struggling Mile High market.

It was only late 2016 when cannabis grows occupied 4.2M SF of industrial space, or 2.8% of the industrial market at the time, according to a CBRE report. 

Today, cannabis has dropped off the radar for the biggest brokerage players. CBRE’s 2017 report is the most recent data available on the cannabis real estate footprint in metro Denver. CBRE, JLL and Cushman & Wakefield were all unable or unwilling to make any representative available for this story. 

A Bisnow analysis of state Marijuana Enforcement Division data shows the number of licensed retail locations has stayed relatively steady since 2021 in the metro area. Licenses for cultivation facilities, though, have seen a dramatic decline.

There were about 298 cultivation facilities, primarily in industrial space, in November 2021. By January 2024, that number had dropped to 253. Today it sits at 215. That’s a 28% drop in three years, with a 15% decline this year alone.

“The cannabis market in Colorado continues to drop. We’re still getting the story right about where the floor’s going to be,” Flower Union Brands co-founder and President Jon Spadafora said.

His former company, Veritas Fine Cannabis, was primarily a cultivator of the plant, and it took up a lot of space: three industrial facilities nearing 100K SF. When industrywide post-pandemic-lockdown market realities hit Veritas, it had tough choices to make. Veritas owned one of the warehouses and leased the other two.

“The one we owned, we sold at a significant loss compared to the price we paid in 2018, based on the desire to get out of it quickly,” Spadafora said of his 24K SF grow.

Veritas had to effectively walk away from its largest lease, a 47K SF facility — a decision Spadafora said was difficult. He believes his landlord is still trying to lease the third location, a 2,500 SF grow house.

“We had a really great brokerage team,” Spadafora said. “We talked to people in crypto, people who run server farms, people who had the power needs like we had.” 

All three of the buildings have been reverted to general industrial use for lack of interest from all of those sectors, he said.

The cannabis industry has spun into a certain degree of chaos since the world began to open back up after pandemic lockdowns.

“Covid came, and there was a huge boom,” The Flower Collective Chief Operating Officer Maxwell Pollet said. “Stimulus checks and people staying at home really built demand. The response to that was build more grows, grow more weed, sell more weed.”

The Nederland-based cultivation, manufacturing and wholesale distribution company went through something like legalization whiplash in Fort Collins, which spent about five years going back and forth on licensing or shuttering marijuana businesses. So Pollet and his team avoided making some of the mistakes that plagued the rest of the industry post-Covid-19.

“We knew we had to isolate ourselves,” Pollet said. “We own the properties we operate on.”

So when people went back to work, began hitting the bars and buying less weed, a glut of marijuana products hit the market, driving down prices and sending an ill-prepared industry into something like a recession. The Flower Collective was able to weather the storm. 

Not every company was so lucky.

Cannabis sales in Colorado have been on a sharp decline since they peaked in 2021 at $2.2B. By 2023, sales had dropped to $1.5B. This year is on track to hit $1.4B, according to MED data.

Statewide, the total number of active business licenses — including cultivation, manufacturing, retail, testing and transportation — has dropped by 22% since the peak year of 2021, according to MED data compiled by the University of Colorado Boulder’s Leeds School of Business.

The Denver Department of Excise and Licenses, which regulates the city’s cannabis industry, has seen a surge of transfer-of-ownership license applications, indicating that more cannabis operators are trying to get out of the game. 

In 2020, there were zero such applications. There were eight in 2021. By 2022, that number had jumped to 63. The city is on track to receive 50 transfer-of-ownership applications by the end of 2024, according to the department.

Consolidation born of the market’s maturation from a near free-for-all in the early days of legalization to an arena where only the strongest and best funded survive is a likely culprit for the decline of grows. And new technology allows more plants to be grown in less time and space, allowing retail locations to stay flush with product on the backs of fewer warehouses filled with weed.

Combine all of that with a nationwide industry downturn, and business and property owners in what was once the cradle of legal kush are scrambling to offload assets before prices erode any further.

It took nearly four years for the CEO of Rocky Mountain Business Advisors to sell a cannabis manufacturing business with an attached industrial space. When the business, once valued at $4M, finally did sell in April, he “almost gave away the property” as part of the deal, he said.

CEO Gregg Kunz, who is also RMBA’s managing broker and an author, said his phone rang frequently five years ago with folks looking to buy a cannabis business. Calls today are more likely to be from a business owner trying to sell.

“I can only think of one time in the past year where somebody wanted to buy a cannabis business in Colorado,” Kunz said.

As the cannabis downturn contributes to a broader industrial property correction, cannabis operators say this painful period has been valuable to their industry. It’s been a sort of trial by fire, creating smarter, stronger, scrappier businesses and leaders. 

What was once a booming sector, gobbling up warehouses and prime retail spaces, has now entered a phase of reckoning and recalibration. Industry leaders are hopeful that the lessons learned during this downturn — leaner operations, better space utilization and a focus on sustainable growth — will help cannabis businesses and their real estate partners emerge stronger. 

For real estate investors, the next few years may mean tougher screening and adaptive leasing strategies, but the sector’s resilience, bolstered by potential federal reforms, leaves a cautious optimism that growth could return in unexpected ways.

“From a real estate perspective, it’s probably scary to work with cannabis companies,” Spadafora said, emphasizing his own company’s maturation and downside planning. “But there’s a level of quick growing up when you have to have that tough conversation with a landlord.”