|Medical or Recreational
|Accepts other States Cards
|Medical & Recreational
Medical marijuana has been legal in Colorado since 2001 after a referendum (Ballot 40) was passed in 2000 decriminalizing possession, use and cultivation for medical patients with documentation of an approved condition from their physician. However, no dispensary system was put in place until 2010, leaving the market in a legal grey area prior to that. In 2010, the state legislature passed a bill establishing a regulatory framework for a statewide dispensary system.
Recreational marijuana was legalized via voter approval of Amendment 64 in November 2012, and went into effect on January 1, 2014.
Beginning in January 2014, adults age 21 and older may possess and purchase recreational marijuana from an authorized retailer. The unlicensed sale of marijuana and public consumption remains illegal.
To be eligible for medical marijuana in the state of Colorado, patients must suffer from one of the approved conditions as documented by a physician: cancer, Glaucoma, HIV/AIDS, Cachexia, severe pain, severe nausea, seizures or persistent muscle spasms. They can then apply for a medical marijuana card with an application fee of $15. Cards are mandatory and out of state cards are not accepted.
Medical marijuana patients and registered caregivers may possess up to two ounces of usable marijuana and six plants, three of which may be mature with usable flowers.
Under the recreational law, anyone over the age of 21 is legally permitted to purchase and possess up to one ounce of marijuana for personal consumption. Colorado law permits non-commercial transactions of up to one ounce.
The Colorado Department of Revenue’s Marijuana Enforcement Division (MED) is responsible for the licensing and regulation of the state’s Cannabis industry. Local governments have the right to prohibit recreational or medical marijuana dispensaries from opening (or place additional restrictions on them) but they do not have the right to prohibit possession.
Colorado has a well-established distribution system in which medical marijuana is sold at dispensaries and recreational marijuana is sold at retail outlets. Licenses are granted to eligible applicants through the MED and there is no restriction on the number of dispensaries or centers permitted in the state. However, as previously stated, local governments may prohibit marijuana businesses from opening. Both medical marijuana dispensaries and recreational marijuana retail outlets may be operated on a for-profit basis.
Dispensary owners and workers must be 21 years of age or older, cannot work in law enforcement and cannot have been convicted of a felony in the past five years. Owners must have been a Colorado resident for the past two years. The state allows dispensaries to operate from 8am to midnight, but cities can implement more restrictive hours than the state allows. Dispensaries cannot be located within 1,000 feet of a school or daycare center and all marijuana leaving a recreational marijuana center must be stored in an opaque, child-resistant package.
To attain business licenses, labs, cultivation, processing and edibles companies must abide by the same rules as dispensaries.
In addition, product manufacturing licenses (for processing and edibles companies) allow only the manufacture and preparation of retail marijuana products and concentrates. This license does not permit the cultivation or sale of marijuana to retail customers and only allows for wholesale to retail marijuana stores.
A company with a cultivation license may grow and harvest marijuana to sell to a product manufacturer, other cultivators, or stores within the Colorado regulated system.
Testing labs are only permitted to carry out testing and research on marijuana for other MED licensees.
Marijuana sold in Colorado must undergo testing for pesticides, toxins, and other impurities at facilities licensed by the Colorado Department of Revenue and certified by the Marijuana Enforcement Division.
As of July 1, 2016, medical marijuana is also required to be tested before being made available for purchase.
Prior to October 2014, recreational marijuana centers were required to grow 70% of their own marijuana, thereby requiring de facto vertical integration of the supply chain. However, this requirement was removed (as of October 2014) allowing companies to specialize in either retail or wholesale grow operations, or both. Accordingly, the market has since shifted to increased numbers of large-scale grow operations and retail-only dispensary chains.
At the point of sale to the end consumer/patient, both recreational and medical marijuana are subject to a 2.9% sales tax in the state of Colorado. Recreational marijuana is also subject to an additional 10% marijuana tax.
An additional excise tax of 15% is levied on recreational marijuana at the first point of exchange, from the cultivator to the retailer.
Medical Marijuana Business Fees
State of Colorado fees levied on cannabis retailers (as of August 2016)
New License Application Fees
Type 1: 1 - 300 Registered Primary Patients.......................................................$6,000.00
Type 2: 301 - 500 Registered Primary Patients.................................................$10,000.00
Type 3: 501+ Registered Primary Patients........................................................$14,000.00
Optional Premises Cultivation.............................................................................$1,000.00
Infused Product Manufacturer............................................................................$1,000.00
Optional Premises Cultivation.............................................................................$1,000.00
Infused Product Manufacturer/Product Manufacturer......................................$1,000.00
Retail Marijuana Business Fees
License Application Fees …...................................................................................$2,500.00
Initial License Fees …............................................................................................$2,000.00
Marijuana Testing Facility Fees
License Application Fees.......................................................................................$1,000.00
Initial License Fees ….............................................................................................$1,500.00
Retail Marijuana Cultivation Facility:
License Application Fees.......................................................................................$2,500.00
Initial License Fees ….............................................................................................$1,500.00
Renewal of all licenses costs original license fee plus $300 per license, annually.
|Total Medical Marijuana Sales
|7.1% (2016-20 CAGR)
|Total Recreational Marijuana Sales
|9.45% (2016-20 CAGR)
The Colorado marijuana market in 2016 continued to expand steadily. Strong growth in the recreational market has allowed Colorado businesses to take advantage of the state's popularity as a tourist destination by allowing them to sell to out-of-state visitors of legal age. As the first and oldest legal marijuana market in the world, Colorado continues to serve as the model of an evolving and maturing industry.
Colorado’s legal marijuana market witnessed continued growth in 2016. Recreational sales for 2016 were outpacing medical marijuana sales at $647 million for recreational versus $391 million for medical. This is attributed to the continued maturation of the recreational market as new dispensaries continue to open. The market for medical marijuana grew slowly in 2016, growing by only 2% as many potential medical marijuana patients find it more convenient to buy from the recreational market despite the higher prices.
Flower remains a very popular form of marijuana, especially among older and more experienced users. However, as the number and diversity of alternate products come to market, flower’s share is expected to decline. This will be largely driven by declining consumer preference for smoking in favor of alternative consumption methods that are viewed as healthier, less conspicuous, and more convenient.
The impressive performance of edibles in the both the recreational and medical markets was surprising to many industry observers, with sales reaching 30% of the recreational market and 25% of the medical market for 2016. It is estimated that they will grow to capture and hold the largest share of the market in the coming years. This is due to the variety of products within this category that cater to different consumer tastes and consumption preferences. Much of the growth of this market segment will be driven by consumers who prefer eating or drinking rather than smoking as their method of consumption, viewing it as healthier, less conspicuous, and/or more convenient. Tourists in particular favor edibles as smoking marijuana is prohibited in public places and most hotels, so edibles are a more convenient alternative.
Concentrates were the fastest growing category in the medical market for 2016, growing by 7.94% to just over $91 million. Concentrates are extremely popular among younger consumers who view the products in this category as healthier than traditional flower because they can be vaporized, applied topically or taken orally. Concentrate products can also be manufactured to contain the CBD-rich compounds (often preferred by users in the medical market) without the high-inducing THC compounds. It is estimated their share of the market will grow steadily, especially in the medical market, and will be comparable to that of traditional flower within the next five years.
Other infused products such as topicals (creams, lotions, etc.), THC pills, tinctures (liquid cannabis extracts) and so forth are growing in popularity among both medical and particularly recreational marijuana users across the nation. These products are popular with women and older consumers who are looking for natural relief for aches and pains or a way to improve the health of their skin. These products frequently have no pscyhoactive effects making them attractive to certain segments of the market. However, all these products combined made up only 2% of the medical market and 3% of the recreational market in 2016 and are forecasted to grow to 3% of the medical market and 4% of the recreational market by 2020. In dollar value terms, these products are expected to see impressive growth from $7 million for medical and $18 million for recreational in 2016 to $13.6 million for medical and $37 million for recreational by 2020.
Production influence on unit prices
State production in 2016 was regulated by statute. According to figures released by the Colorado Department of Revenue, actual production continued to be less than authorized production. This likely reflects market equilibrium forces with actual cultivation corresponding to the perceived amount retailers were able to sell. Although the black market continued to play a role, increased demand brought about by the legalization of the recreational market continued to be matched by increased supply. As such, unit prices remained relatively constant.
Tax policy influence on unit prices
Unit prices are generally higher in the recreational market. The average price per ounce for recreational flower in Colorado is $335, while the average price of an ounce of medical marijuana is only $200. Prices vary significantly for an ounce of flower in the recreational market, ranging from $150 -$400 per ounce, catering to smokers on a budget as well as those with more discerning palates.
Federal tax laws that prohibit dispensaries from deducting many common business expenses afforded more traditional industries, as well as the uncertainty surrounding the legality of banks doing business with dispensaries, create significant hardships for the legal marijuana industry. Operating an all-cash business also creates safety concerns for dispensary owners and employees. Additionally, the inability to get traditional business financing or deduct business expenses limits the potential for expansion and growth for most dispensaries.
Number of grow operations
At the time of this publication, there were a total of 1,358 growing operations in the state with 786 being medicinal and 572 being recreational operations. These cultivation operations have been adequate in supplying the 964 medical and recreational dispensaries in the state.
Regulations on grow operations
Any new Retail Marijuana Cultivation Facility with a license granted after September 2014 is authorized to cultivate a maximum of 3,600 plants at any time.
Indoor vs. outdoor
Cultivation may take place indoors or outdoors. Indoor facilities must be fully equipped with alarms and commercial-grade, non-residential door locks. Outdoor or greenhouse facilities must meet all of the security requirements that apply to indoor facilities, as well as demonstrate that outdoor areas are not readily accessible by unauthorized individuals. This includes insuring that, at a minimum, perimeter fencing designed to prevent the general public from entering exists.
Adequacy of supply
The removal of vertical integration requirements has allowed for the development of large-scale, specialized grow operations with a more robust legal supply of marijuana. Accordingly, Colorado enjoys a relatively stable balance between supply and demand, as evidenced by steady month-to-month flower prices.
Size of operations
Since the removal of the vertical integration requirement, the number of operating marijuana businesses has greatly increased (as of August 2016, there were over 1,300 grow facilities, 430 processing facilities, and 964 dispensaries). Chains are becoming increasingly prevalent, with larger chains boasting anywhere from four to seventeen dispensaries statewide.
Number of processing facilities
At the time of this publication, there were 430 processing facilities operating in the state, 237 medicinal and 193 recreational. This represents an increase from 315 in May of 2015, or a 36% increase in just over one year. This massive growth is unsurprising considering the substantial expansion of the industry overall, as well as the wide and growing popularity of edibles and concentrates throughout the state. The demand for processed products is expected to continue increasing over the forecast period (2016 to 2020) as consumers increasingly shift from smoking marijuana to other forms of consumption. Processed cannabis offers the legal market a strong competitive advantage over the black market where flower is still the most common product.
Regulations on processing
Concentrate manufacturers are required to have standard operating procedures for production. These procedures must be detailed with step-by-step instructions on everything from preparing the marijuana (prior to production) to cleaning the equipment once production is completed.
Solvent-based extractions are defined as those using chemicals with a flash point below 100 degrees Fahrenheit. These must be carried out in specifically licensed labs.
Water- or food-based marijuana concentrates must be extracted in food-grade conditions in compliance with sanitation regulations.
Size of operations
The high rate of growth in the number of processing facilities in 2015 continues in 2016 thanks to continued maturation of the recreational market. With the legalization of recreational adult use and the growing popularity of cannabis products such as edibles and concentrates that require significant processing, the number of processing facilities is expected to continue to grow over the forecast period, though at decelerating rates.
The Colorado processing market continues to be primarily comprised of small independent operations throughout the state. However, there are several larger companies who are increasing their presence and making up a large percentage of the market. Consolidation in the industry is expected to continue as the market matures.
Number of QA operations
As of August 2016 there were 15 licensed retail marijuana testing facilities in the state of Colorado. The state has issued a total of 28 licenses for different types of testing, though many testing facilities are authorized for muliple types of tests. 11 have received provisional certification for potency/homogeneity testing, 8 have received provisional certification for residual solvents testing, and 10 have received provisional certification for microbial testing. Thirteen (13) of these labs have also received certification to test medical marijuana.
Ten (10) labs received licenses between December 2015 and August 2016. This represents a 55% increase in the number of licensed labs in just nine months. This growing demand is due both to the continued expansion of the recreational market and the new requirements regarding testing of medical marijuana.
State QA requirements
Recreational marijuana must be tested for potency and contaminants before it is sold. As of July 1, 2016, quality assurance (testing) is required in the medical market.
While in-state laboratory chains have yet to be developed, multi-state chains are becoming a reality. The most notable example of this is Steep Hill, a testing lab native to California and owned by Harborside Health Founder Steve DeAngelo, which recently opened a location in Denver. The company now has labs in California, Colorado, Washington and Nevada.
As of August 2016, 10 testing facilities have received certification for all four testing categories.
Colorado has had a mature dispensary system in place since 2010. The number of dispensaries continues to increase year over year and this trend is expected to continue, though at a decreasing pace, over the forecast period.
Lounges are present in the market, though not permitted by law. Amendment 64 specifies that “nothing in this section shall permit consumption that is conducted openly and publicly.” Most private clubs are located in Colorado Springs, where they offer access to recreational marijuana for donations, despite the city’s ban on recreational marijuana sales.
Number and size of operations
While the dispensary system is characterized by independent stores there has been some consolidation and several chains of dispensaries have been established, especially in the Denver, Boulder, and Colorado Springs areas, where chains are prevalent. Notable chains include LivWell, with 14 locations, Native Roots, with 17 locations, and Strainwise, with 9 locations. With the legalization of recreational adult use, and a for-profit business model, more consolidation is certain to continue in the years to come.
|For Calendar Year 2016 (unless noted)
|Medical cards in circulation
|Estimated Adult Marijuana Consumers
|# of university students
|Prevalence of HIV/AIDS (Rate per 100,000)
|HIV 270 / AIDS 117.5 (2011)
|Prevalence of Cancer
|Prevalence of Glaucoma
|Prevalence of Epilepsy
Colorado, with approximately 255,000 university students enrolled in 2013, has a very large student population. Though the use or possession of marijuana is explicitly prohibited on its major campuses such as the University of Colorado (CU) and Colorado State University (CSU), campus marijuana use and “runners” — campus slang for those who buy cannabis for others at medical or recreational facilities — are an open secret (at least on the flagship CU Boulder campus).
The demand for marijuana is certainly present among students on campus and seems to be growing as the Boulder campus moves from a punitive stance to a more educational approach regarding marijuana. Marijuana citations by campus police have been falling with 154 as of October 2014 compared with almost 256 in the same period the year before.
It is also difficult to determine whether students are consuming more as there is no long-term data by age. About 16,000 18- to 24-year-olds are on the statewide medical marijuana registry, accounting for 14% of all cardholders. Given that Colorado´s 2014 population between ages 18 and 24 totaled fewer than 480,000, over 3% of the population in this age group is registered to purchase and consume medical marijuana (before even factoring in demand for recreational).
Since it is relatively simple to attain a medical cannabis card in Colorado, students who do not want to pay the hefty tax for recreational marijuana — three times that levied on medical marijuana – often seek medical cards or purchase from those who have them. Given the importance of product price among the university student demographic, there continues to be a great demand for medicinal marijuana even following the legalization of recreational.
Furthermore, among those who completed the National Survey on Drug Use and Health (NSDUH) from the Substance Abuse and Mental Health Services Administration (SAMHSA) in 2013, between 60 and 75 percent of marijuana users were between the ages of 18 and 25, a particularly significant statistic when looking at demand in a population as young as that of Colorado.
With a 2014 population of just over 650,000 residents 65 or older, or 12.2% of its total population (compared to over 15% in Arizona and Oregon) Colorado has a relatively small proportion of elderly residents. However, according to the Colorado Department of Human Services, from 2011 to 2021 the number of older adults in Colorado is expected to increase by 54 percent. This population boom could bring an increase in demand for medical marijuana to treat ailments commonly suffered by elder populations such as Alzheimer’s disease and Glaucoma.
Fortunately for Colorado, the incidence of some of the most severe and debilitating medical conditions, such as cancer and HIV, are down. As these patients are gradually living longer they will need a growing supply of medical marijuana to control their conditions. However, according to the Medical Marijuana Registry Update (3/2015) only 3% of medical marijuana patients claim cancer as their debilitation condition, compared with 1% for HIV/AIDs, while 93% list severe pain. As a result, the prevalence rates of these diseases are not driving the demand for medical marijuana cards in Colorado.
Among those 65 or older approximately 63,000 people (or 9.2% in the 65+ demographic) currently suffer from Alzheimer’s in the state. Alzheimer’s or “agitation of Alzheimer’s” is a qualifying condition for the legal use of marijuana in a handful of other states, but patients with this disease are not eligible for medical cards in Colorado. If it were added to the list of qualifying conditions an increase in demand for medical marijuana might be expected. However, it merits mention that since the Colorado Medical Marijuana Registry Program began in 2001, no new conditions have been added.
Glaucoma, on the other hand, is a qualifying condition in the state and is also more common among older populations. In 2012, among those 40 and older the prevalence of Glaucoma was 36,000 (1.6%). However, the most recent Colorado data showed that only 1% of the state’s roughly 115,000 medical marijuana patients reported having Glaucoma. Thus, Glaucoma patients are not a significant source of demand for medical marijuana.
Finally, the results of the NSDUH data analysis show that very few users (less than 1%) of those surveyed nationally in the age 65+ demographic were using marijuana with any frequency. The true figure may be higher due to bias or privacy concerns that altered responses among this particular age group, but one can infer from this extremely low figure that the market for marijuana among this age group is probably minimal.
An anonymous web-based electronic survey administered to the 1,727 members of the Colorado Academy of Family Physicians determined that 46% of respondents did not support physicians recommending medical marijuana, and only 19% thought that physicians should recommend it. The study demonstrated that, despite a high prevalence of use in Colorado, most family physicians are not convinced of marijuana's health benefits and believe its use carries risks. Therefore, patients may be more likely to visit medical marijuana clinics than their primary care or family physician for a marijuana recommendation.
Due to the inclusion of conditions such as nausea and severe pain to the list of qualifying conditions and the low fee ($15) for a medical card, it is considered relatively easy to get a medical marijuana card in Colorado.
Colorado is a swing state with pockets of conservativism and pockets of liberalism. The state has a Democratic governor and Democrats have the majority in the House of Representatives while Republicans have the majority in the Senate. However, Colorado showed slightly higher Republican affiliations than Democratic ones in the 2010 and 2012 Congressional elections. In the 2012 presidential election, Democratic affiliations reached 51.49 percent while Republican affiliations reached only 46.13 percent. While many view cannabis legalization as a liberal stance, the example of Colorado has shown the issue can gain support from liberals and conservatives alike.
Colorado is starting to witness the development of the industry’s first real cannabis dispensary chains, a model that is likely to become increasingly common as the industry matures and recreational markets open up in additional states. Companies such as Native Roots and The Green Solution boast as many as 17 and 13 outlets respectively (as of August 2016). They are closely followed by Strainwise and Mindful with 9 and 6 outlets, respectively. While these chains are among the largest in the state, others such as Medicine Man have a smaller outlet count but larger stores and command a significant share of Colorado’s retail market.
Competition is rampant amongst the established chains in the most lucrative areas, notably the Denver metro area, the I-70 corridor between Denver and the popular ski resorts, and Colorado Springs. Chains vie for consumer loyalty by promoting their Cannabis Cup awards, their membership or loyalty programs and their wide selection of high quality flower and edibles. Many chains advertise themselves as the leading chain or dispensary in Colorado, or the even the country.
Despite the development of highly sophisticated and professional retail establishments, the vast majority of the state’s 529 medical and 435 recreational outlets are run by small independent operations. Independent operations are common in Denver and rural Colorado alike, though they see much more limited competition in rural areas.
As the first and largest recreational cannabis market, Colorado continues to attract the attention of many entrepreneurs and investment firms looking for entry points. In June 2016, the Colorado state legislature passed a law removing the two-year residency requirement for investments into the market beginning in 2017, opening up the way for large out-of-state investment. Retail chain LivWell was instrumental in promoting the change in legislation.
Strainz, a Nevada-based cultivator and processor, has reached a deal with the Colorado firm Bronnor Corporation, and plans to begin distributing its products in Colorado in late 2016/early 2017. Strainz has invested $8 million for expanding its distribution to Colorado and Washington.
While all recreational dispensaries were initially required to grow at least 70% of their own product, Colorado eliminated this requirement in October 2014, allowing both dispensaries and grow operations to specialize. Consequently, large-scale cultivation operations and retail chains have developed, and overall, the number of licensed businesses has significantly increased. Nevertheless, other businesses maintain vertical integration of some or all of their supply chain. Processor Blue Kudu has recently invested $2.5 million in developing its own cultivation facilities, becoming one of the largest manufacturers to vertically integrate its supply chain.
As Colorado is a developed market, both the recreational and medical sides of the legal market are dominated by established, branded manufacturers with national presence. State-specific brands such as Blue Kudu and Wana Edibles are also popular. The ten largest edibles brands account for 57% of the edibles market, demonstrating a significantly higher concentration than what is found in most other states. The concentrates market is much more fragmented, with the top ten brands only accounting for 11.5% of the market. For the others category, the top ten brands account for 50% of the market, a concentration similar to the edibles market.
Edipure is a large, well-established edible manufacturer that distributes in California, Washington and Colorado. Edipure specializes in soft gummy candies, such as sour worms, dried fruit, hard candy, crackers, and candy-coated nuts. The company offers a 100% patient satisfaction guarantee and a no-questions-asked return policy. They also claim that their unique THC preparation methods eliminate any taste of cannabis in their products. Edipure accounts for 2.32% of the total edibles market as of August 2016.
Incredibles is a multi-award winning, Colorado-specific edible company that specializes in chocolate bars, including milk chocolate, espresso, white chocolate, mint chocolate, and peanut butter. The company also sells gummies and marijuana capsules, as well as a separate line of chocolate bars for recreational use. These bars have lower THC content than medical use bars. Each batch is tested by CannLabs in Colorado. Incredibles is the top-ranked Colorado edibles brand, accounting for 17.16% of the market as of August 2016.
Originating in Colorado, Cheeba Chews is one of the oldest and most widespread edible manufacturers in the country. The company specializes in chocolate taffy with products separated both by flavor and by strain type (Indica, Sativa, Hybrid, CBD). One of their main selling points is the emphasis on consistency, quality, and THC content of their products when compared with smaller-operation competitors. Given their small size, Cheeba Chews are also considered to be a very discreet method of consumption. Cheeba Chews currently accounts for 11.12% of the edibles market.
Dixie Elixirs is a Colorado edibles company specializing in cannabis infused sodas, mints, and chocolates. The company also sells a wide selection of tinctures, concentrates, bath soaks, and capsules. Its chocolate bars are packaged in innovative childproof packages in response to recent concerns about children ingesting cannabis edibles. Dixie Elixirs accounts for just over 6% of the Colorado edibles market.
Mary’s Medicinals is a Colorado-based manufacturer of patches, capsules, tinctures, transdermal pens, and other topical products. The company also maintains a line of CBD-based products known as Mary’s Nutritionals that includes tonics, topical products, and oils. The company enjoys a 23% market share among others products in Colorado, and is commonly found in other states as well.
As in many states, brand marketing makes heavy use of online presence and advertising with emphasis on the purity of THC extraction methods and lab test results. As Colorado is a relatively established market, another selling point for brands is to be featured in industry specific and mainstream publications such as magazines and newspapers. However, these publications must be targeted only at adults and a company must be ready to present "reliable evidence" that at least 70% of the audience of each publication is over the age of 21[i].
As of May 2016, Colorado concentrates maker O.PenVape had made a bid to buy naming rights for Mile High Stadium in an effort to legitimize marijuana brand names in mainstream advertising, though it will remain to be seen whether this will be approved. Billboard advertising remains prohibited in Colorado for marijuana companies, though some mainstream companies have taken to using marijuana references to promote their products on billboards, to the frustration of many in the industry. General Mills had a large scale advertising campaign in Denver ahead of 4/20 touting "4/20 is better on Pizza Rolls".
The recreational segment of the market is expected to see significant growth in the short-term as the market matures, with an expected 18.7% growth in 2016. Moving into 2016 and beyond the recreational market is forecast to grow around 8% per year. Forecasts show a slight increase in the value of the medical market by 2020 with a predicted value of $439 million. The entire legal market for Colorado is expected to exceed $1 billion in 2016 and expand to $1.3 billion in 2020.
Edibles and concentrates will continue to show strong growth in both market segments and the diversity of products within these categories will continue to grow. Medical edibles and concentrates are expected to grow by a CAGR of 11.5% and 8.81% respectively, between 2016 and 2020 for the overall market. Recreational edibles and concentrates are expected to grow by a CAGR of 12.33% and 11.05% respectively between 2016 and 2020. These forecasted growth rates illustrate the opportunities for existing and new brands to enter these markets. Products that are viewed by consumers as healthier, less conspicuous, and/or more convenient are expected to perform particularly well.
The medical market share of other infused products like topicals, THC pills, tinctures, etc. is expected to increase to 3.1% by 2020 with the dollar value of sales estimated to increase from $7 million in 2016 to $13.6 million in 2020, a CAGR of 17.91% over the forecast period. The recreational market is forecasted to grow by a CAGR of 19.84% between 2016 and 2020 reaching a market size of $37 million in 2020.
According to the MED 2015 Mid-Year Report, by mid-2015 nearly 69% of local jurisdictions (222 of 322 total) prohibited recreational licensees. This represents a slight decrease in the number of jurisdictions that had recreational licenses in 2014. As Colorado's regulatory and enforcement system matures, many more of these jurisdictions are expected to allow recreational licensees. This trend is expected to continue throughout 2016 and will enable established retailers to expand and new retailers to open in untapped markets.
The removal of the vertical integration requirement in Colorado has opened up the potential for a booming industry for cultivation and distribution over the medium term. Because most dispensaries had operated their own grow operations, the demand for product grown by specialized cultivation operations has been limited. However, demand for specialized grow operations is expected to expand over the forecast period as new dispensaries continue to open and existing dispensaries decide to close or sell their grow operations and specialize in retail.
As the market for specialized cultivation operations grows, so do further market opportunities. While the national industry focus is on the growing number of consumer delivery services and apps, there are few distributors connecting grow operations and processing companies with dispensaries. This segment of the market presents opportunities for savvy entrepreneurs who are able to build a sophisticated and user-friendly model. For example, online ordering platform LeafLink, which connects licensed retailers to processors and cultivators, is now serving over 100 Colorado dispensaries and over one dozen vendors. The company has raised $1 million in angel funding and seeks to expand to other states in 2017.
Perhaps the biggest threat to the market comes from the disconnect between Colorado and the Federal Government in terms of marijuana laws. While the current administration has given Colorado room to experiment with its markets, marijuana remains illegal at the federal level and a change in policy could drastically disrupt Colorado's recreational market.
The most notable recent change in the regulatory environment has been the establishment of testing requirements for the medical market, which is likely to lead to increased demand for certified testing facilities.
Additionally, in June 2016, Colorado lawmakers recently approved a measure instructing the MED to establish a process for out-of-state investors to enter the state cannabis market. This would specifically permit individuals or businesses from other states “to enter into different types of financial arrangements with a medical marijuana or retail marijuana licensee as long as the registrant cannot and does not exercise any control over the licensee.” Among the provisions is the requirement potential investors acquire residency in Colorado and hold it for at least two years in addition to passing a background check. The extra capital generated could help emerging cannabis companies meet their initial startup costs, as well as lead to higher expansion potential and consolidation for existing businesses.
With the removal of the requirement for marijuana centers to grow 70% of their own product, coupled with the fact average actual production in 2016 has continued to be less than authorized production, indications are the market has more than enough capacity to meet consumer demand.
Likewise, specialized grow operations will develop in Colorado in the coming years and ensure supply will continue to meet demand. More specialized grow operations are likely to expand the variety of products available in the market catering to different consumer preferences and budgets. These operations should be capable of achieving prices that are able to compete with the black market.
Based on the NSDUH, it is estimated that total volume demanded will increase nearly 22% between 2015 and 2019. The legal market will absorb roughly 83% of this demand with the black market meeting the remainder. However, if local jurisdictions currently prohibiting marijuana sales decide to permit it, this would allow the legal market to meet an even greater percentage of demand.
As the first state in the country with legalized recreational marijuana, tourism has played an important role in Colorado's recreational cannabis industry. However, as more states legalize recreational marijuana, Colorado's cannabis tourism industry will need to be strategic to maintain its leading position. Creating safe places for tourists to consume will be important as smoking is currently prohibited in public places and in most hotel rooms. There is a growing niche of tours, hotels and bed and breakfasts catering to this market, but there is huge potential for this to develop over the forecast period.
Competition will intensify as legal markets continue to expand. Grow operations must establish themselves and many producers plan to differentiate their products or create niche markets such as organically grown cannabis. Competition is expected to develop in edibles and concentrates as these segments grow as well. Product diversification is expected to continue with more specialized segments developing (such as sugar free or gluten free edibles for the health-conscious consumer). As the market for legal marijuana develops in other states around the country, strong brands of edibles and concentrates will continue to emerge, many of which are expected to target Colorado as a prime market for expansion.