If you're looking for ancillary cannabis companies, Colorado is your state.
Running a cannabis business has its challenges. You're dealing with a federally illegal substance, you can't work with the banks or get tax deductions, and then you've got all the rest of the red tape involved with selling a psychoactive substance.
While the industry is undoubtedly enticing and lucrative, some companies—not to mention investors—would rather play the cannabis game in a different way, without getting their hands covered in sticky resin.
For these people, the ancillary market is where it's at. This involves selling services or products that are involved with cannabis, without directly touching it. An ancillary good or service could be a vaporizer, a delivery service, or product packaging to name a few examples.
And while raw flower cultivation and distribution is what often comes to mind when people consider the cannabis industry, the ancillary market is actually far larger.
For these reasons, we're going to take a look at the epicenter of ancillary cannabis companies: Colorado.
Colorado is an important state when it comes to cannabis. It was the first state to legalize cannabis for recreational purposes in the U.S. in 2012 and has since raised the most revenues out of any U.S. state from their cannabis sales, surpassing $1bn in total.
And in the seven years that cannabis has been legal in the state, Colorado now has 41 of the top 150 ancillary cannabis businesses, according to Cannabis Business Executive. To put that into perspective, California only had 35 businesses that made the list.
The first-mover advantage that Colorado gained in the cannabis market through their early legalization has allowed the state's infrastructure to flourish, making it the go-to place for all things cannabis.
In fact, 1 in 4 people who traveled to Colorado between 2013 and 2018 listed cannabis as a reason.
And of course, as cannabis becomes more popular, the ancillary companies which support the industry become even more crucial.
A perfect example of such a company would be GrowGeneration (OTC: GRWG), a hydroponics company founded in Pueblo, Colorado in 2014.
GrowGen supplies a wide range of ancillary products, from organic nutrients, soils, and advanced lighting technology, to hydroponic equipment, pest controls and ventilation solutions.
In the five years since GrowGen started, they've become the largest hydroponic equipment supplier in the country, with 25 garden centers operating over 9 states.
Hydroponics, lights, and ventilation are all crucial components for any home or commercial grower looking to maximize their yield.
Though despite being an asset in the cannabis and hemp industries, GrowGen doesn't sell any cannabis itself, or market itself as a cannabis-focused company.
Operating in the ancillary space gives the company the benefit of sidestepping legislative hurdles and simply operating like any other business, while still reaping the rewards of the booming cannabis space.
Other companies have taken a similar tact to GrowGen, such as BDS Analytics, Front Range Biosciences, Wurk, Leaf, Potguide, and Sana Packaging, all of which also emerged from Colorado.
Though this list of companies has something in common, other than their Colorado roots. They each were assisted by CanopyBoulder, Canopy's accelerator branch which focuses on seed-stage ancillary companies.
We spoke with Celia Daly from CanopyBoulder recently, who told us that "Boulder has been a tech and entrepreneurship hub for a long time. Combined with the fact that Colorado has been the most stable and successful at legalizing adult-use cannabis, Boulder was the obvious choice."
The Future of Colorado
Colorado is definitely the space to be watching for anyone interested in ancillary cannabis companies, and will likely be for years to come. However, it isn't all sunshine and rainbows.
Being a thriving center for cannabis, and, as we've now learned, the center for ancillary cannabis businesses, Colorado will undoubtedly be hit negatively by the recent vaping crisis that has caught worldwide attention.
According to the Denver Post, "Colorado has reported eight cases of the vaping-related illness, and six people have been hospitalized. Nationally, lung illnesses related to vaping have jumped to 805. Twelve people have died, including five in the past week."
The Marijuana Enforcement Division—along with cannabis industry stakeholders—are seeking to introduce new rules and regulations around vaporizers and the additives found within them, which are said to go into effect from January 1st next year.
Unfortunately, the recent damages caused by vaporizers may be enough to shake the industry for a long while, which will affect cannabis countries and states worldwide – with Colorado being no exception.
Vaporizers were looking poised to overtake raw flower sales as the next go-to method of cannabis consumption, which would have greatly aided ancillary cannabis tech companies. Now, the future is not so certain.
So while vape sales will certainly take a dive in the coming months, it's all systems go for the rest of Colorado.
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