Episode 6

How Cannabis Can Boost Local Economies

How Cannabis Can Boost Local Economies

On this episode of the podcast our host Adam P. Kolbach discusses the impact of legal cannabis on local economies with our team of experts. They discuss topics like job creation, tax revenue, how cannabis empowers non-cannabis businesses, and much more.

Guests include:

John Valdez – Vice President & Real Estate Director at HYC
Jim Marty – CEO & Founder of Bridge West CPAs
Kris Teegardin – Director of Government Relations at HYC and the Mayor of the 1st town to codify cannabis
Mark Fisher – Partner of HYC’s Real Estate Network

SPEAKERS

John Valdez, Chris Teegarden, Jim Marty, Mark Fisher, Adam Kulbach

 

Adam Kulbach  00:09

Welcome to the higher enlightenment podcast brought to you by higher yields cannabis consulting suggested for mature audiences Parental discretion advised are restricted persons under 60 not admitted unless accompanied by parent or adult guardian X persons under 18 will not be admitted. This seal and advertising indicates that the film was approved under the motion picture code of self regulation Hello and welcome to the higher enlightenment podcast brought to you by higher yields cannabis consulting your seed to scale Cannabis Business Solutions team and the creators of the innovative cannabis consulting business solution system higher enlightenment. So what are these podcasts about? The higher enlightenment podcast was created to discuss everything cannabis. Whether it be Cannabis industry news in the cannabis industry insider insights, advice and tips to establish your own successful cannabis business and cannabis pop culture in general. We’ll also be discussing Cannabis News from around the globe. A new episode of the higher enlightenment podcast will be released every two weeks. I’m Adam from higher yields consulting and today we’ll be discussing the impact that cannabis has on the local real estate market. We are joined by Jim Marty of bridge West CPAs Chris Teegarden, the Government Relations Director at h YC Mark Fisher, a partner of hy C’s real estate team, and John Valadez, Vice President and real estate director at hy city. We appreciate your choosing our theater and to make this experience more enjoyable for everyone. We hope you’ll refrain from talking during the show. Thank you. So starting with Chris, could you please give a little introduction to yourself? Hi, my

 

Chris Teegarden  02:24

name is Christine Gurdon. I’m the former mayor of Edgewater, Colorado and the director of government affairs here at higher yields.

 

Adam Kulbach  02:36

Thanks. How about you, Mark?

 

Mark Fisher  02:38

Hi, I’m Mark Fisher. I am the director of membership excellence. You’re at higher yields consulting. My background is in licensing and acquisition of real estate.

 

Adam Kulbach  02:52

Thank you, Mark. How about you Jim?

 

Jim Marty  02:54

Jim Marty. I’m a CPA and founder and CEO of bridge West. We are accountants and advisors to the cannabis industry. And we do the tax and accounting work for about 400 cannabis license holders nationwide.

 

Adam Kulbach  03:12

Well, thanks for joining us. We really appreciate it. We’ll be discussing a few topics here. Like economic development, job creation, community engagement, tax revenue, and benefits of social equity, also involvement in local communities. Let’s first talk about job creation. Once you purchase a cannabis property, the next step is hiring local community members. Chris, you had some great experiences in Edgewater? What can you tell us about job creation when you were working there as mayor?

 

Chris Teegarden  03:49

One of the things that was very particular to Edgewater, Colorado is that the city of Edgewater took absolutely no property taxes from its businesses or its citizens. It was all funded on sales tax. So the retail sector and Edgewater, we were a land land block community. And retail was Major. We had six retail dispensaries in the city of Atwater, and they employed close to 100 people and revenue streams from our tax dollars, which was at 3.5% was upwards of $1.25 million in fiscal year 2015. So the revenue generated just out of those brick and mortar retail stores was quite astounding and amazing and as you could tell that servicing those retail stores is touching major parts of the cannabis industry as a whole. So from that standpoint, especially on the local level, it generates a lot of cash flow. And we also saw upticks in our tax base across the board, especially in our restaurants, and other shopping centers, because we were extremely liberal and where we put our, our retail shops. And so we would see a lot of people visiting cannabis stores and then also doing some shopping, while wrapping the chopping of cannabis stores into a full day of visiting our city. You know, when you’re talking larger municipalities and county levels, you probably start looking at a lot of those property taxes in larger operations that are going to employ more people. And especially when you start looking at the cultivation side of things, manufacturing side of things, you are starting to look at more of the skilled trades being involved and higher vertical company operations that are going to employ more management style. So you have people down on the entry level jobs all the way up to managerial and then to executive. So

 

Jim Marty  06:28

Chris, if I could chime in? Yes, sir. Some of those retailed dispensaries in Edgewater were clients of ours. And you had a very good competitive competitive advantage, because you had extended hours compared to Denver.

 

Chris Teegarden  06:43

Oh, yeah, we sure did. And Denver at the time, when we started it was they close our shops at 7pm. And as water stayed open till midnight, and we were open till midnight, right out of the gate. So those five hours that we were open from seven to midnight, we we did well, I can’t deny that. And I know that our experiment was used quite a bit when the the committee is chaired by ASHA can’t remember her name, great council woman on Denver City Council. I went to their committee and just gave them an idea of our variance and they went to 10pm. Now, I think we did naturally see a drop off, but not too much.

 

Jim Marty  07:39

Yes. And I have a couple of stories I could share. In 2008, you know, the Great Recession, there was a lot of vacant warehouse space in around Denver. And I mean, you’re talking about landlords that were jumping at $1 a square foot, and 2009 2010, the Obama administration came out with their memos that said they would not interfere with state compliant cannabis businesses. And a good story of one of my clients who will go unnamed, he calls this guy who had a vacant building in an industrial part of Denver, and sitting the guy is just sitting there. He’s 80 years old, sitting in his vacant building the phone rings. My client says, Hey, we want to rent your building want to grow medical marijuana was just medical at the time. The 80 year old gentleman says is that legal? My client says yes, we think so he goes, Okay, so they rented that warehouse for about $1 a square foot, I would say today, you’re not going to get anything under $10 a square foot and probably quite a bit more,

 

John Valdez  08:51

if you’re lucky.

 

Jim Marty  08:52

Yeah. And the other big impact is, the minute you sign that lease, you’re pulling building permits, you’re buying lights, you’re upgrading the heating and lighting and electricity and water and air conditioning. So you’re putting people to work immediately upon purchasing or leasing a building.

 

John Valdez  09:13

And I’ll show you creating a higher value because of the the best use for property is the valuation of the property. So as you’re pushing that square foot price up, it’s creating a whole different market than what the market was in eight, nine and 10 when it first started.

 

Jim Marty  09:30

Yes. And within two or three years, the county assessor’s are going to revalue that real estate and your real estate taxes are going to start to go up as well.

 

John Valdez  09:40

In turn after 10, you have more money into back into the community.

 

Jim Marty  09:44

Now we’re talking about Colorado. I believe this webinar will be broadcast nationally. So not everyone has the same resets for property taxes that we do here in Colorado.

 

Adam Kulbach  09:57

Hey Chris, about how many jobs can dispensary create, do you have an average,

 

Chris Teegarden  10:04

you’re going to have anywhere from four to five people in the sales room, you’re probably gonna have a couple people in the back. So we’ll just say that with seven, you’re gonna have a manager, that’s going to be eight at each shift. You may have people coming into the store picking up cash deposits and other things, but I will just stick to the store. So we’ll just say, eight people employed per shift. And then you are open from eight in the morning to midnight. Most places aren’t like that. So I’ll go down to two. So you’re talking 15 to 16 people on a ship in a in a larger retail storefront at any given given time. So then, then you can say you’re looking upwards up to just that brick and mortar store 30 to 50 people depending on how big that store is, that would be my guesstimate, which is quite about

 

Jim Marty  11:07

chiming in on the cultivation extraction side. Even more so, you know, 50 to 75,000 square foot cultivation, they’re gonna probably employ 50 people, cultivation is very, very labor intensive. You’d have to look at every plant every day, probably 20,000 plants in a facility that size, watering nutrients, harvesting, trimming, very, very labor intensive on the cultivation side, and it’s really doesn’t lend itself to automation.

 

Adam Kulbach  11:41

So Chris, did you see a large drop in unemployment when this industry opened up?

 

Chris Teegarden  11:48

Oh, yes. The market. The retail market in Edgewater just exploded all over the place. And there were jobs being created are blighted spaced in Edgewater was filled, which was called the Azure Marketplace. It was kind of mid destination plan of small shops kind of that shared. Shared open space, you know, it’s kind of a throwback to those old 80s malls where the food court was and everybody hung out and now they just rewrap that and add a beer and cannabis to it. So that was amazing to see some of the things that Edgewater was able to do with with cannabis, we finished our infrastructure. One, two, we moved a lot of our old and dilapidated buildings or civic buildings at the city owned into a new Civic Center. And that was really pushed by the cannabis money. And that opened up more retail space for other businesses to occupy. So when I was done being mayor, that was putting on the last processes is opening, opening up more retail space, which invariably added more retail jobs. So yes. At the end of the day, we we as a city and as the private sector working together, we are creating more jobs, not only in the cannabis industry, but across the board.

 

Adam Kulbach  13:22

So Mark, it seems that cannabis can create a lot of opportunities for learning on the job. Do you agree with that? And why?

 

Mark Fisher  13:32

Oh, without a doubt. First of all, we’re a new industry. So everybody is learning on the job. Whether you’ve been in this in the market before we became recreational. I’m speaking to you from California. I can also tell you the that that Chris and Marty were absolutely spot on with the numbers. You’re looking at about 35 to 50 people per dispensary. The one thing we forgot to mention there was delivery, as well. So you have a lot of guys out there delivering in where, for instance, if you have a guy working as a pizza delivery guy or delivering for any other restaurant, whether it’s Postmates or whatnot, these guys are working for a very nominal wage, where the delivery person for a cannabis company is going to most likely run anywhere from that $25 to $35 an hour. So immediately starting without tips, just by the breakdown of the of the work, they’re going to make more that also it leads to a lot of opportunities vertically within each organization. To get somebody that is a button Under and gains knowledge on the different brands, how to relay that to people that often will lead to not just the retail side of things moving up into management. But then then there’s a lot of opportunity in distribution and sales. And one thing we haven’t mentioned here yet is we can employ what used to be the unemployable. If somebody has a record, say they had an incident in their life, where they were, they were arrested for cannabis, which would prohibit them from working from working in multiple industries. Were okay. And I can’t speak to the drivers or the warehouse forklift workers. But usually there is no barrier of entry as far as testing for cannabis as far as drug testing. And you’re seeing a lot of industries throughout the country, have a real difficult time hiring people, because they can’t find people that can pass the drug test for cannabis. Here, not a barrier.

 

Jim Marty  16:18

That’s right, Mark. The joke we like to tell is we only test for positives.

 

John Valdez  16:24

Yeah. That’s a good one.

 

Adam Kulbach  16:31

We’ll return to the higher lightning podcast in a moment. Do you need help in applying for cannabis business license? Do you have questions about the process? Are you feeling overwhelmed? Good news. higher yields cannabis consulting can help. Our cannabis licensing experts offer industry leading support for all cannabis related businesses. Our team of experienced application writers has worked on over 100 cannabis license applications. higher yields has worked on regulations in cannabis licensing in over 25 states across the USA, and internationally in more than 10 countries. We’ve also helped our clients be awarded licenses 13 Plus merit based states. If you need assistance with cannabis licensing process, don’t hesitate to call us. Our initial consultation is free. Please call 844 high yield, or visit our website at WWW dot higher yields consulting.com. We now return to the higher enlightenment podcast brought to you by higher yields cannabis consulting. Mark, you’ve been involved in many different projects throughout the country. How beneficial and important do you think it is to start at the ground level and be one of the first people into the market?

 

Mark Fisher  17:53

It’s it’s very important as far as a number of different factors number one being it’s usually less expensive. At the very beginning, especially since we’re talking about real estate. Once the green zones are developed, and the the early adaptors come in, they set a price, which is genuinely over market value to begin with. But then, as Marty mentioned that eventually the you get reassessed and those taxes draw in more revenue for the for the town. It also is fantastic for the investors in the property originally.

 

John Valdez  18:42

And then I’ve seen in Colorado where I’m from, that it actually helps the residential market not only in the commercial sector, but the residential sector also increasing the values in that community. So that brings in more revenue, more tax revenue, higher paying jobs. It’s it’s a snowball effect on the whole real estate market. I think. That’s great.

 

Adam Kulbach  19:04

Let’s talk about community engagement. What are some of the effects on the community like job creation and how it affects bars, restaurants and all the other community members?

 

Mark Fisher  19:17

I’ll speak to that generally. And then I think we will go to Chris and Marty for more more local effects it especially Chris, you are you are where the rubber meets the road. And that’s where everything starts with the local government. But it also begins in the community with with teaming up with nonprofits, just by the nature of a dispensary or cultivation facility, the security that that goes on with it is incredible. So typically, some of these green zones are not in the best neighborhood. They haven’t been gentrifying I’d well once we start developing cannabis properties, just by the nature of the game money starts flowing in A, B would be the security requirements are quite heavy, usually 24 hours security on the property. And that tends to calm things down in the neighborhood, not to mention the beautification and the the renovations that go on. For the it to be in the green zones, usually, let’s let’s be frank, the green zones are usually in pretty rundown neighborhoods, years, and years, and they’re not so rundown anymore.

 

Adam Kulbach  20:49

Does anybody else have something to say about that?

 

Jim Marty  20:51

Oh, Jim, here. Yeah, there’s a social equity component. I’ve been working with the team here on some applications in Illinois, where having a little bit of a drug bust on your record can actually be give you some extra points on an application. So the whole social equity component turns everything 180 degrees from where it was before, where people as, as Mark said, a few minutes ago, people who might not be able to get a job in other industries, now, they actually are a enhancement to a craft cannabis application in Illinois, for example,

 

Chris Teegarden  21:33

just for firming. And one of the big things that what that tax revenue add definitely frees up some of the social aspects, like I had said before, you know, completing a full infrastructure project. Sped up that investment in the community, which, you know, people are going to be attracted to, to go live, work and play in those areas that are kept up. That’s the nuts and bolts of what a city does is making sure that infrastructure is working properly, and it’s up to date. Second, in many, you know, municipalities across California, in Colorado are using their tax revenues in different ways. But with our limited resources, with the new Civic Center was huge for our community, police station, somebody threw a rock through the window of a police of our police station, and they thought it was an abandoned building. And the police came out and talked to the lady she was just very upset. And so the police asked, Why did you throw the rock through our window? And she said, Well, I thought it was an abandoned building, and everybody got a laugh out of it. So when we the police station was built in the civic center, we also partnered with the Jefferson Public Library, that’s a district and we paid for the building and we charged the public library $1 a year so that was accessible to not only Edgewater, but also northeast Lakewood are our neighbors to the to the south of Moscow. So it was a joint venture and my good friend Mayor Adam, Paul was came out for the groundbreaking and it was just a great show of community spirits and and one last thing is when we invested in Edgewater, we were able to our house, we were able to come in very affordable and even with six dispensaries in less than one square mile opened from like eight in the morning to midnight, our property values went up like 110%. So the myth of property values being going in the tank, if cannabis comes to your town is absolutely false.

 

John Valdez  24:18

It sounds like it brings not only your community and municipality lecturer and or your aunt or whoever. It’s opening up a dispensary and it brings the surrounding municipalities together. Also, that’s creating a huge sense of community not just in your community, but the surrounding communities around you.

 

Jim Marty  24:33

I just had a few comments here that might segue us into the next topic, which is that these tax revenues while they may not be very, super large or super significant as a percentage of a total budget of billions and billions of dollars there what’s it what’s interesting about this, these marijuana tax dollars as they come in, is it’s an it’s new revenue which is very good. For a city or county is something very new and different to have a new source of revenue. And it’s not already encumbered. You know, and I think Chris can bet can back me up when I say that in a city’s budget, probably 90% of that money is already spent, there’s very little discretionary money left in a city, a county or a state’s budget. Well, the point I’m making is this is new and more importantly, it’s unencumbered money

 

Mark Fisher  25:30

of the immediate neighborhood. Just to give an example. Down in in New Jersey, right near the state capitol. There’s a dispensary that popped up in a neighborhood we’re talking extremely old established neighborhood, there was a pizza place there that opened in 1967. Immediately following the opening of the dispensary, the revenue at the pizza joint doubled and in stayed at the state level to this day. So, you know, in of course, they were a little wary when they realized their next door neighbor was going to be a cannabis dispensary. And now they’ve teamed up in the running specials to gather. smoke shops in the neighborhood are booming. And as they were in these are old cigar stores that have been there for 40 to 70, in some case, years old generational businesses that have now found whole new revenue streams.

 

Jim Marty  26:54

One of my mountain clients here in Colorado was in still is upstairs from the liquor store. And when he first went in there, the liquor store complain they didn’t like the smell, you know, there was going to be problems. And then the liquor store sales started to go up and he stopped complaining.

 

John Valdez  27:12

Yep, we were in Trinidad, Colorado, quite a bit small town in southern Colorado. They allow cannabis to go in and increase the values of real estate tremendously brought in big players from Denver, like Dana Crawford, who is the Crawford hotel developer in Denver brought her out to Trinidad to start purchasing tons of real estate out there, putting money back into the community, Hickenlooper gave, I think it was $16 million to do a Art Center in Trinidad, a grant for them. It just brought a lot of income and revenue, tourism and everything else from that area. The they have apogee, which is a is a subsidiary of Burning Man, they have that for the last three years there. It’s a big festival brings in about 3000 people a year. So it definitely brings in a lot of a lot of different people and opportunities for people.

 

Adam Kulbach  28:10

Let’s segue into tax revenue and the opportunities that states and cities have. What can municipalities do to tract operators?

 

Jim Marty  28:21

What you find, especially as you get up into other states, that may be are heavy in population, but smaller geographically take Massachusetts, for instance, there’s not a lot of properly zoned places that meet all the setback requirements. So what you find very quickly, in a state like Massachusetts, is that even though Massachusetts does not have limited licenses, they definitely have very limited properly zoned spaces for cultivation and retail. So that’s my comment on on zoning is you’re going to find very few places. So if you happen to get lucky and you have one of these, then you can probably get a license

 

Mark Fisher  29:09

in Jim, Massachusetts, the towns they are competitive as far as being able to set their own tax rates. I don’t know if that was the case in Colorado, but it is you’re seeing Yeah, so what you’re seeing is some competition amongst the towns to give a more advantageous tax rate in attract cannabis companies as well. Yes, some

 

Jim Marty  29:33

want them and some don’t want them. I think Monique can chime in maybe the term that we use here in Colorado is home we’re a home rule state which means that our municipalities can set their own tax rate he mentioned Edgewater Edgewater said their city tax rate at 3.5%.

 

Chris Teegarden  29:51

The interesting thing is quite true. There was an issue up in Adams County which is in northern Metro Denver, that a county was going to put more restrictions and more regulations on the industry, and also higher tax rates. Well, you go across the BOC, and then there’s another city in there in a different county that wasn’t doing that. So the great competition there, and from the and also, also from the cannabis community was loving unfair advantage. And in certain zoning areas, whether that was within the city, or with the competition between cities and counties, and that does happen, which I think is amazing. And one of the things going forward, if you’re in a prohibition state right now, really try to look for what the state is doing and what they’re going to allow flexibility for the local communities. That is so key on allowing this experiment. If if a locality, whether that’s your county or your cities, to embrace this is to make it community oriented. Let those regulations fit that community while this experiment is rolling out, and then adding to it. Luckily, in Edgewater, we went for the home run and we slam the home run, that may not be the case in every community. But I think allowing those local communities the flexibility, having those operators and the industry come in to a friendly environment, to make sure that that process is effective. And and just like any other business, let it thrive, and see where it goes because the tax revenue is there. And being able to free up major part of a tax revenue stream, especially when local communities across the United States are strapped for cash is so important to be able to have that implemented into your totality of an economic portfolio, especially on the local level. It is just in my opinion, title.

 

Mark Fisher  32:08

The municipalities that are next door to the ones that do not embrace cannabis, for instance, in California to this day, only about a third of the municipalities have cannabis, cannabis companies, excuse me operating those neighbors to the to the to the north, south east and west of the of the municipality that has refused to embrace this or put restrictions in zoning or slid other things like that into into the mix to make it more difficult to operate. So those become targets. You want you want to be in the town next to the town that doesn’t allow cannabis.

 

John Valdez  33:03

That’s like Trinidad. Trinidad is a border town. And they thrive because of that.

 

Jim Marty  33:09

Look at the toussis. No adult use in New York, Connecticut, Vermont, New Hampshire, very limited adult use in Maine. So yes, there’s getting a lot of island as well, what islands, they get a lot of cross border traffic.

 

Adam Kulbach  33:25

And your opinion, Jim, collecting excise tax for the cultivation. Is that better? Or is the retail tax a better source of revenue for taxes

 

Jim Marty  33:35

eat specific tax that matters. It’s the combination of it all. You can’t go too far, like California has, in my opinion, where the customer is paying 40% tax at the cash register. They’ll go back to the black market. That’s when California has really struggled although they’re doing a good job moving from the illicit market to the legal market. There’s still a large illegal market in California because their taxes are so high. Now Colorado, you go to the cash register here, and it’s about a 21% tax, your $10 Join is going to cost you $12.10. And we have pretty much put all the local marijuana dealers out of business. In fact, some of them have been friends of mine. And boy they sing the blues that they used to get $400 announced 510 years ago and they’re just out of business. So you have to have the right balance. All in and I think this is maybe leads into the next question and I’ll just jump to it. All in Colorado was probably at about 50% total. So our legal cannabis industry is just under $2 billion a year. And between the state and the cities, they collect about a billion that billion is made up of income tax on Colorado business tax returns. It’s made up of regular sales tax on medical marijuana. It’s made up of regular sales tax on adult use marijuana, then you have an excise tax, as you just mentioned, per pound, but $150 a pound when it moves from the cultivation to the retail. And then finally, you have a sin tax, I call it an extra 10% tax generally on retail marijuana. So that puts you at about 21% at the cash register. And then all in we’re pretty much collecting 50 cents of tax for every dollar that a customer spends.

 

John Valdez  35:46

That’s pretty impressive. I mean, that’s that’s quite a bit that the municipalities bring in. The state brings in

 

Jim Marty  35:52

well, that state and municipality combined.

 

John Valdez  35:55

Yeah, that’s, that’s pretty pretty. I didn’t realize it was that much. That’s great information to know.

 

Adam Kulbach  36:02

Well, that’s about all the time we have for today. I’d like to thank you guys for taking the time out of your busy days to share your knowledge with us. We really appreciate it. Also, I’d like to thank the listeners. There’s much more to come. So stay tuned and please join us next time. And please stay tuned for some parting announcements. For information on how to follow the higher enlightenment podcasts. Please be sure to check out the description below. You’ll receive all the latest and greatest podcasts news and announcements will also let you know when we release new episodes. If you’d like to be a guest on the higher enlightenment podcasts, or have ideas about upcoming episodes, please be sure to check out the description below. For information about sponsorship or advertising on the higher enlightenment podcast, please call us 844 high yield that’s 844 Hei WWII ELD or visit our website at WWW dot higher yields consoling.com thanks have a great day and we’ll talk to you soon.