By Adam Detsky – Attorney at Law – Wilson Elser Moskowitz Edelman & Dicker LLP

While the City of Denver has lifted its moratorium on new licensing and building use permits for the cannabis industry, the news is bad for those looking to break into the business. On April 25, 2016, the City Council passed bill CB16-0291 (View here) which sets caps on the number of locations where cannabis can be cultivated and sold.”

The new city ordinance allows for a maximum of 311 distinct locations for cultivation facilities in Denver and 226 distinct locations for cannabis sales. The new ordinance does not distinguish between retail stores and medical stores, nor does it distinguish between medical or retail cultivation sites. A “location” refers to a single, distinct address.

What this means to the cannabis industry in Denver is that the city is closed to new locations for the foreseeable future. In fact, under the new ordinance, the number of locations for new shops and cultivation sites is effectively frozen at current levels. Even more damaging is that the total number of cultivation sites in the city would be gradually reduced, with the new ordinance providing that the city will grant one new cultivation license for every two that are suspended, revoked or otherwise surrendered. The new caps would freeze the number of locations of marijuana shops and eventually reduce the number of grow houses by 15.

Restrictions under CB16-0291

While the estimated 45 pending license applications (View here) with the city will be allowed to move forward with the process – not a guarantee they will be approved – the news is not so good for those whose applications were not yet in at the time of the moratorium. Under the new ordinance, the city will create an annual lottery system. Starting in 2017, there will be one annual open application process for new store and cultivation licenses. However, that annual lottery is subject to the caps noted above.

The new ordinance also seeks to prevent over-saturation of certain neighborhoods within the city. For each application period, the city will identify the five neighborhoods where the highest number of licensed marijuana sales locations exist and the five statistical neighborhoods where the highest number of marijuana cultivation sites exist. These neighborhoods would be classified as having an “undue concentration” and will be prohibited from any further licensing for that year’s open application process.

On April 11, 2016, the new ordinance was defeated by a vote of 6−6 (View here); a revised and amended version was proposed on April 18, 2016, and was passed by a vote of 7−5 (View here), with two council members not present. The vote count is misleading as the three council members who voted against the revised bill did so because they felt it did not go far enough to protect the industry-saturated neighborhoods.

The new rules stemming from the bill don’t end there. The new ordinance also requires all new recreational cultivation sites to be at least 1,000 feet from schools and residential zones, which is a regulation that had already applied to stores. In addition, the ordinance passage means that both stores and cultivations must submit “good neighbor” plans for working with neighborhoods. Going forward, all marijuana businesses – new stores and cultivation sites and those applying for renewal − must submit a community outreach plan that details how these licensees will actively participate in improving their local neighborhood community.

This means that within the City of Denver the rich will get richer and the smaller stores will be bought up for top dollar. According to recent data published by The Denver Post, Denver’s largest newspaper, 10 people control nearly 20 percent of Denver’s active medical and recreational licenses, largely by acquiring smaller cultivation sites, shops and dispensaries. As the Post reports, “the numbers tell a story of a consolidating industry, as big operators buy small ones struggling to keep up with more government regulations, tax rules and other pressures.”

The City Council has been busy lately. In addition to this new ordinance, there is also a pending “odor” ordinance that requires businesses in the marijuana industries to submit an odor control plan that will address growing concerns by the city that the smell emanating from cultivation sites is becoming a public nuisance. The odor control plan must be approved by the Denver Department of Environmental Health. Exactly what constitutes an acceptable odor control plan is a matter of debate and unclear presently.

By all accounts, the City of Denver has seen revitalization on several fronts as a result of its liberal policies with regard to cannabis. These include increased tourism and increased tax revenue, and warehouses that once sat vacant are now sought-after properties. Evidently, it was too much, too fast and the City Council appears to be more likely to continue to pass ordinances that will curtail the industry’s growth within Denver. That is not to say that entrepreneurs cannot venture outside the city to establish operations, though that is not an attractive option – particularly for those looking to establish a medical or retail store.