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

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