January 2020

High Hopes: Profit, taxes and the Budweiser of Cannabis

Part 1-: Which companies have found success or failure in the new and tumultuous landscape of cannabis in Pueblo County?

Karson Beckstrom, White Diamond Botanicals speaks before Pueblo County’s Marijuana Licensing Board. (Noah Weeks for PULP)

By Miriam Brown and Michael Gorman

High Hopes is a collaboration between PULP and Colorado College’s Journalism Institute.

On a recent December evening, Karson Beckstrom is waiting for a chance to speak before a seven-member government panel that oversees whether his chosen line of work will continue or catch a death sentence.

The reason of his visit, declares a board member in a flat monotone, is for “a renewal application for a retail marijuana cultivation facility… submitted by White Diamond Botanicals LLC. And there are tax issues.”

Welcome to the Pueblo County Liquor and Marijuana Licensing Board, the public entity responsible for overseeing and administering a raft of regulatory business that includes renewing cannabis business licenses each year. And that’s what members of the board are doing around 6 p.m. on Monday, Dec. 9 where Beckstrom is just one of several cannabis business owners in Pueblo County awaiting to hear the latest fate of their enterprises.

Smartly quaffed and goateed in a sport coat and tie, Beckstrom approaches the podium to respond to lingering questions about those tax issues. In late 2018 and early 2019, he explains, he was late multiple times in paying the county’s excise tax.

“The reason being, quite simply put, was tough times,” he tells the board.

Beckstrom explained that “vertically integrated” cannabis businesses have had more success in the Colorado market, in an interview with PULP. White Diamond Botanicals is not a vertically integrated business. That is to say, he only owns a growing facility, which means when the time comes to sell his crop, Beckstrom is at the mercy of what dispensaries are willing to pay.

He tells the board that as a cannabis cultivation facility, White Diamond is taxed at three levels: 15% to the state, 3% to Pueblo West Metro district, and 4% to Pueblo County. Though the state tax is based on the amount of sales the facility actually makes, the other two are based on the average market rate — a number calculated by statewide sales that does not necessarily represent Beckstrom’s local market.

Last year was particularly brutal, Beckstrom tells the board.

At one point during the hearing between the cannabis entrepreneur and Joseph Treanor, a member of the county’s Liquor and Marijuana Licensing Board:

Treanor: So how many employees do you have?

Beckstrom: I have five full-time.

Treanor: And so for a month, what’s the payroll then?

Beckstrom: Payroll comes to about $10,000 per month.

Treanor: So conceivably you could’ve not paid your workers and paid the tax.

Beckstrom: Conceivably, yes.

The problem last year, he tells the board at a different point in his hearing, was that wholesale prices dropped “phenomenally,” and he was only selling product for about $700 a pound. His taxes, however, were based on the average market rate of around $1,200 — a full $500 per pound more than he could sell it for at the time. In a business that also sees bank charges “anywhere from a $1,000 per month fee up to $3,000 per month,” Beckstrom said, sometimes the numbers don’t add up in his favor.

His audience on this day is receptive. After assuring the board that he is currently caught up with the taxman, its members unanimously renew his license. He leaves the room flashing a smile and, shaking hands with some in the audience.

As Beckstrom’s remarks to the local cannabis board indicate, the market can be fickle, and not just for him.

Shawn Honaker at Yeti Farms remembers when he got $5,000 for the first pound of pot he ever sold. Now, he says, that’s closer to $1,200. “And the market’s up right now. … Unless you’re prepared for that, you’re going to see tragedy.”

In the five years of legal cannabis in Pueblo, not every business that opened still is. The market in some places has consolidated.

Enter Medicine Man Technologies, a cannabis business conglomerate that recently announced a company acquisition plan potentially worth around $170 million that would make it one of the largest vertically integrated cannabis operators in North America. The company is set to acquire a dozen cultivation facilities, 33 retail dispensaries, seven proprietary extraction facilities, seven infused-product manufacturers, and a research and development lab.

So there will be winners and losers in what can be a sometimes volatile market — in Pueblo and beyond.

Jim Parco, whose companies Mesa Organics and Purplebee’s were acquired by Medicine Man in June 2019, draws similarities between the company’s pending acquisitions and the emergence of alcohol companies like Budweiser and Jack Daniels during the post-prohibition era.

He sees Pueblo County as a “key aspect” to that development.

“Currently, 40% of the revenues coming out of the cannabis industry are coming out of the state of Colorado,” Parco says. “Colorado is still the biggest story out there, and because of this we’re probably going to have one of the largest companies in cannabis to emerge out of Colorado.”

Overall, Parco says, at the county level the cannabis industry is booming, and on an economic upswing.

“We employ probably somewhere between 1,600 to 2,000 people, and we’re currently adding about $5 million a year to the county coffers,” he says. “Which is basically an $83 million budget. So it’s been a very good news story in Pueblo for economic development and job creation.”

Only time will tell if owners like Beckstrom are able to keep up or even survive in a world dominated by the “Budweiser” of cannabis, but if there’s any place to do so, it could be Pueblo.

About the Authors

Miriam Brown

Originally from Memphis, Tennessee, Miriam is a student journalist at Colorado College’s Journalism Institute. She worked for CC’s independent student newspaper, The Catalyst, for two years in a variety of roles, including reporter, section editor, copy editor, and co-editor-in-chief.

Michael Gorman

Junior, studying race, ethnicity, and migration studies and journalism at Colorado College. From Bethesda, MD, with journalism experience in the Journalism Institute at CC as well as running The Sideline Observer, a student-run online media organization. @SidelineOMike

Noah Weeks

Noah grew up in St. Louis, MO, and is a senior Film and Media Studies major at Colorado College. His interests include public policy, political journalism, and sustainable international development, and his documentary “Guns for Everyone” was featured on Rocky Mountain PBS’s series “In-Short.” Noah can be found on @WeeksNoah.

Ana Mashek

Ana is from Swarthmore, PA. She’s currently a sophomore at Colorado College, where she is pursuing a degree within their Journalism Institute. She works for the school’s independently run newspaper, The Catalyst, as both a writer and layout editor. @ana_mashek

This series was produced by Colorado College Journalism students and PULP.

High Hopes

What has happened to Colorado’s ‘Napa Valley’ of weed?

Intro: In 2014, Pueblo was referred to as the “Napa Valley” of cannabis, but by whom?

Part 2: License and Registration, Please

What does it take to earn a license in a tightening Pueblo cannabis industry?

Part 2

Part 3: Rising Tide in the Desert 

How federal cannabis regulation trickles down to raise water prices for Pueblo businesses.

Part 3

Part 4: Bloom Doom, Seedless in Pueblo

How federal cannabis regulation trickles down to raise water prices for Pueblo businesses.

Part 4

Part 5: From the Ground Up

Fluctuating market prices have made hitting profit thresholds a veritable science for cannabis growers.

Part 5

Part 6: What happened to the ‘Silicon Valley’ of Testing? 

With only one functioning cannabis testing facility, how can retail owners and growers be sure of their product?

Part 6

Part 7: Driving the Business

The white vans army fuels gets the cannabis from grow to the store.

Part 7

Part 8: Seeds to Retail Shelves

What happens in a Pueblo dispensary, anyway?

Part 8

Part 9: Not One Typical consumer

The white vans army fuels gets the cannabis from grow to the store.

Part 9

Part 10: High Hopes: Profit, Taxes and the Budweiser of Cannabis

Which companies have found success or failure in the new and tumultuous landscape of cannabis in Pueblo County?

Part 10