How the 'Napa Valley of Cannabis' Dried Up

0:05So, this is Pueblo County, and this is where all the pot stuff started. and this whole area was filled with pot stuff. Karen Randall lives in Pueblo, Colorado, one of the first cities in the country to develop a legal marijuana industry. We're in cannabis country here. I'll show you the greenhouses over there you can see. Karen took our colleague Julie Wernow on a tour of Pueblo late last year. As they drove around, they spotted signs of the cannabis industry everywhere. I mean, that looks like a giant sort of like industrial warehouse size building. Yeah, exactly. I guess I'm just surprised how packed together it all is.

0:46And you can smell, like smell it.

0:52Can you smell the pot? Oh, yeah. Yeah, right. That signature smell was hard to miss. And yet many of the marijuana greenhouses and dispensaries that Julie saw seemed to be shuttered. It looks like a lot of abandoned businesses. You see anything in there? It looks empty, right? Yeah. So this is a big pot place. Wow. Yeah. A lot of these are closed. Right here is a dispensary. So this is the second one you've seen. It's not like, I'm not seeing like big full parking lots. No, I never see cars there. Pueblo was a city that dreamed of being a marijuana hotspot. And it went all in on Colorado's growing legalized pot industry.

1:39Julie went there to see how it was faring a decade later. Pueblo was a place that was on track to be what they said was the Napa Valley of cannabis. And then everything went wrong. When I showed up there, it was definitely not that. This was a place full of failed businesses. So what would you say happened to Pueblo? The message I got from people in the town, and this is on both sides, is there people who are in the marijuana business and people who are against the marijuana business, is this is not what we signed up for. This is not working out the way that I was promised.

2:29Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Friday, April 18th.

2:42Coming up on the show, how one Colorado town's cannabis dreams went up in smoke.

3:02Pueblo is a city two hours south of Denver, with a population of just over 100 ,000 people. When recreational weed became legal in Colorado in 2014, Pueblo saw an opportunity to establish itself at the center of the cannabis boom. Pueblo did a really good job of convincing the rest of the country that they were the destination for weed. The county commissioner at the time called it the Napa Valley of Cannabis. Advocates like him imagined Pueblo would draw marijuana lovers from around the country. Why was this so important to Pueblo? Pueblo was a place full of hard-working, blue-collar workers who just couldn't catch a break.

3:46They had been this huge steel town. They were shedding those jobs for years. There was a local slaughterhouse that also closed up shop. And so they just kept trying to get back on their feet and were struggling. And this new industry sort of showed up in America and said, you know, we can help you with that. And they were going to be among the first. And so it was a lot of excitement around that. The idea was that embracing the legal cannabis industry could bring new jobs, tourism, and tax revenue to Pueblo. And at first, it seemed like that's exactly what was going to happen. Leading up to the first day of marijuana sales, people literally, like, packed up everything they owned, got in their vehicles, and just drove to Colorado with no plans.

4:42This is people from all over the country? People from all over the country. One local newspaper reported that the day after legalization, 50 people were camped out in front of one of the first weed shops in Pueblo, waiting for the doors to open. And in the first month of legalization, the two licensed shops in Pueblo County rang up a combined$1 million in sales. That amounted to$56 ,000 in taxes for the county. Pueblo couldn't get more shops licensed fast enough. people are comparing it to, they're saying it's the new Amsterdam. One group that does have a cannabis business there told me, you know, that there was so much demand to get one of these licenses that people would like rush to the steps of the county building and try to get there first so that they would get the best spot.

5:33You know, one of the places had like Girl Scouts selling cookies in the parking lot. There were food trucks. I mean, it really was like a huge, exciting moment for the city and the county.

5:50One local joint that sprung up during that exciting moment was called Sticky Ickies. In 2016, the owners set up shop on a popular route from the city to a local lake, which brought a lot of business in the summertime. There's like a doorbell that goes off when you walk in.

6:14Daniel Swick was the manager there and he, you know, welcomed us in. This is the first point of entry. Once we know that their IDs are verified and not expired or underage, then they're able to go to the fun part. And then you sort of are let into this beautiful back room. Okay. I guess we'll go where all the customers would first start. You've got lit glass shelves and a display board with sort of, you know, different levels of cannabis that you can buy. There's three shelves from top to bottom. The very top shelf we call our platinum. The middle shelf is our gold shelf. Okay, bottom shelf. Uh-huh.

6:55A1 steak sauce. There's a lot of strains that actually have really humorous names to them. By 2017, Sticky Icky's was riding Pueblo's cannabis high. At one point, its daily sales rang up to about$20 ,000. But that boom didn't last long. And soon, things started looking sticky for businesses like Sticky Icky's. Things really started to kind of go downhill shortly after the pandemic around 2021. When you actually go and look up all the licensees, the marijuana licensees in that area, you can see that boom and bust. You know, there's a point at which you have just hundreds of businesses and then it starts to drop off dramatically.

7:47For one thing, competition was fierce. The number of cannabis businesses that flooded into this city and the surrounding county were pretty outsized for the demand. You had a situation where it's a city that has like seven to 10 Starbucks, maybe. That's a pretty good indicator usually of, you know, how many of these businesses there should be. And they had, you know, more than 200 cannabis businesses at one point. And so inevitably, you know, some of those folks didn't have enough demand that they were going to fail. The 200 shops faced a lot of competition from each other. And it didn't help that the taxes on marijuana products were so high.

8:31Colorado levies a 15 % marijuana sales tax and a 15 % excise tax on marijuana. And then Pueblo County tax on another 5 % excise tax and a 6 % sales tax. And then if you have a cannabis business that's in the city of Pueblo, you're going to pay an additional 10 % excise tax, which is one of the highest in the state. I mean, I can see why businesses didn't love that. There was definitely some lobbying on behalf of some of the local businesses saying, you know, these taxes are too high and that's why all these businesses are failing. And if you were to remove this tax, then we would actually be able to thrive and we would be able to compete.

9:21And some sellers were skipping the license process and going through the black market instead. One of the unexpected things for Pueblo was that everybody sort of thought, well, if we legalize this stuff, the illegal stuff will go away, right? I mean, why would they bother? Not only did that not happen, but the law enforcement there said that it actually got worse. And one of the reasons was that when there's all this legal marijuana around, it's a little bit easier for the illegal marijuana to hide. Why was there so much illegal dealing? Well, what people didn't anticipate is that if you are in the illegal marijuana market, you can charge less.

10:04I mean, it's a really simple economic argument, right? If you're not paying for, you know, sales tax, excise tax, marijuana sales tax, county tax, city tax, state tax, you can charge way less than the legal competition. And so they continued to thrive under the legal regime. At the same time, this was around 2020, other states started legalizing marijuana, creating even more competition. What did that mean for businesses like Sticky Ickies? They told me that for a long time, you know, they were pulling in something like$20 ,000 a day in sales. Right. And since then, you know, it's plummeted to about$2 ,500 a day in sales.

10:54They've also shed some employees. And so one of the things that happened is Sticky Icky's owner, in the time that I was talking to him, decided to pull out his stake in that enterprise because he had another business he'd started in New Mexico. And in New Mexico, he said the taxes were about half what they were in Colorado. As the marijuana industry in Pueblo has struggled, the county's tax revenue has plunged. dispensaries have closed down, going from more than 200 businesses in 2017 to just 45. The profitability has dropped dramatically for the businesses. So only like a quarter of these businesses are even profitable.

11:36So the trends are not going in the right direction. And as Julie spent more time in Pueblo, she heard from residents who felt strongly that the failure of the marijuana industry was hurting their town. That's next.

12:11Pueblo's marijuana business boomed and quickly went bust. Now, local law enforcement, along with some city officials and residents, say the experiment wasn't worth it. One of the lingering problems has to do with the people who came to Pueblo from out of town, drawn by the industry's promise. While some did start their own shops, that wasn't the case for everyone. Generally, what was happening is there were a lot of people who had some kind of, you know, criminal record, something that was making it difficult for them to find a job, and they also loved cannabis. And so when they heard about how there was going to be all these jobs, you know, they sort of imagined themselves working in the marijuana fields or at a dispensary and that this would be this kind of golden age where they'd be able to find something to support their families.

13:00But even as the cannabis industry took a nosedive in Pueblo, a lot of the newcomers stuck around. Crime and homelessness started to rise, and some residents that Julie talked to blamed marijuana. Local police told Julie that before legalization, there were only about 15 unhoused people in Pueblo. and they knew all their names. Now, that population has grown to more than 500. Julie went on a ride-along with Ryan Masterson, who's with the local police department. He said that unhoused people he's spoken to have told him that they came to Pueblo for the marijuana. Did they ever tell you their story?

13:37Like, where are they from? Why are they here? Sometimes. Sometimes. Someone from South Dakota coming, why are you here in Pueblo of all places? and it was a very typical story of, well, I wanted to land in Denver, I wanted to land in Boulder, I wanted to land in Aspen, the places you really think of when you think of Colorado, and then realize quickly that they couldn't afford it and where could they look to a place to come and Pueblo would end up being a good landing spot for them. There are people who, you know, eyewitness coming through sort of on a cannabis journey. And some of that led to problems, you know, where law enforcement were having to show up to large encampments for all kinds of issues that they don't know anymore.

14:29You know, did this did this stem from marijuana? Is it fentanyl now? Is it meth? What's going on? And it just kind of became this messy soup that nobody can really, really sift through anymore. Whether there's a distinct connection between homelessness and cannabis legalization is still being debated. Regardless, city officials say the tax revenue they're bringing in from marijuana isn't enough to meet the costs of some of the new problems they blame on the industry. And social organizations trying to address these issues are feeling the strain. There's definitely a couple of longstanding organizations there.

15:07But to give you a sense, the executive director that I spoke to at one of the only organizations that really can provide like shelter for families. She said that she grew just so overworked and burned out from the situation that she she left. She left not only the organization, but she left Pueblo altogether. There are still some weed shops in Pueblo, though many of them are working with fewer employees and slower business. you know, Sticky Icky's is still there. It's still open. It has a couple other owners. I know there was some talk of selling. They have, you know, significantly fewer customers than, you know, they did in the past, but they sort of feel like the longer they hang on, the fewer competitors they have.

15:54And one of the things they have going for them is that they were among the first. And so They snatched some customers who know about them, stopped by, you know, regularly. What would it take at this point for Pueblo to have a strong economy or even a stable economy? Well, I talked to the local economic development corporation. You know, these are the guys whose job it is to sort of sell Pueblo to businesses and help create a better economic picture. And what they told me essentially is that they're kind of leaving marijuana behind, that they're focusing on their legacy kinds of industries, growing those, supporting those, and that they just don't see recreational marijuana as a part of the economic picture for Pueblo.

16:47Pueblo was one of the first communities to go all in when Colorado led the legalization of recreational marijuana. Now, 24 states around the country have done the same. What's your takeaway from your reporting on Pueblo? I think there's a lot of lessons to be learned from a place like Pueblo that was first when it came to legalizing marijuana. You know, we have communities that are just starting now with this experiment. And so if we want that to go well, we really need to look to the communities that have been there and say, what could we do differently? So it isn't that Pueblo is an example of why this is not going to work.

17:35It's more of a, it's not going to work this way. Exactly. It hasn't really worked out for Pueblo. Does that mean that it won't work out down the line for somewhere else? Not necessarily. This is really early days still for this industry. There's a lot of things that need to still be worked out. And I'm not sure we have any answers.

18:11That's all for today, Friday, April 18th. The Journal is a co-production of Spotify and The Wall Street Journal.

18:46The show is made by Nathan Singapok and Peter Leonard. Our theme music is by So Wiley. Additional music this week from Catherine Anderson, Emma Munger, Bobby Lord, Nathan Singapok, Peter Leonard, So Wiley and Blue Dot Sessions. Fact-checking by Mary Mathis and Kate Gallagher. Thanks for listening. See you on Monday.