Mile High Munchies

Well, no one saw this coming.

Denver skyline Photo: Larry Johnson. Source: Wikipedia

There’s a touching scene in Peter Hessler’s book “Country Driving” where a family in a small Chinese village receives a gift from the local Communist Party. It’s a framed skyline of a gleaming foreign city with a digital readout of the temperature, time, and date. The unnamed city was supposed to represent China’s bright future. The city was Denver; the year was 2005.

Through foresight or good fortune, the Chinese Communist Party got it right: over the last decade, Denver has been on a roll. Last year US News ranked it as one of the best places to live in the country. The population has been growing, and the city is particularly popular with millennials – supported by growth in the technology, energy, and financial industries. A boom in restaurants has followed, transforming a sleepy Southwestern culinary scene into a vibrant foodie culture.

But there’s a problem in paradise. Colorado’s Amendment 64 – which legalized marijuana for recreational use starting in 2014 – is making it a lot harder to hire and retain restaurant staff. It’s not just the $20 / hour with full benefits that cultivators can earn. It’s also working regular hours in a climate-controlled greenhouse, versus a hot, stressful kitchen. Some restaurant chain operators see workers leave for the pot industry every few weeks. It’s also hard to find entry-level workers in other industries, like construction and retail.

Marijuana greenhouse workers. Source: GGS-Greenhouse

In addition, pot smokers aren’t drinking as much beer and wine with their meals – and alcohol always has a big mark-up. As a rule of thumb, a bottle of wine that costs $20 in a liquor store will cost $60 in a restaurant. Since restaurants operate with razor-thin margins, the bar tab really helps keeps them profitable. Many Denver eateries are now seeing their alcohol sales fall by 2-4%.

What all this adds up to is higher prices for eating out. If restaurants need to pay more for labor and are selling fewer high-margin drinks, menu prices will have to rise in order for them to stay afloat. But this could eventually work out. Higher wages for entry-level work should attract more labor. And demand should increase: marijuana tourism has boosted travel to Colorado, and hey, maybe they’ll all get the munchies.

Source: Denver International Airport

For now, though, the cost of eating out in Colorado will go up. You can’t repeal the laws of supply and demand – or the law of unintended consequences – when the political and social framework changes. Denver still has a bright future. The Mile High City may just have to pay a little more for a night on the town.

Douglas R. Tengdin, CFA

By |2017-07-17T12:21:26-04:00April 3rd, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

Leave A Comment