Mayor's Equity Investment Fund Will Use $15.2 Million in Pot Taxes

Update: The Denver City Council approved the Herman Malone Fund and its $15.2 million budget during its October 24 meeting. Keep reading for our original story.

Mayor Michael Hancock is pushing Denver City Council to approve a $15.2 million marijuana tax revenue allocation for a business investment fund.

Plans for the Herman Malone Fund, created by Hancock's administration and the city's Economic Development & Opportunity department (DEDO), call for it to benefit minority- and women-owned businesses only, according to Hancock's office. Named after the late Herman Malone, a legendary local businessman, the fund has already been established using a 1 percent allocation of the city's marijuana sales tax revenue, but Hancock and DEDO need city council approval to get the fund running.

Later this month, council is expected to consider a request to approve a partnership between the city and the New Community Transformation Fund, a Denver venture capital firm that invests in early-stage businesses founded by owners from marginalized communities.

“Historic inequities and systemic marginalization continue to prevent Denver’s underserved business owners from scaling to sustainable growth and building multi-generational wealth. My administration is committed to leveling that playing field,” Hancock said in statement announcing the $15.2 million proposal. “These challenges primarily stem from decades of a lack of access to capital. That’s why I proposed that Denver dedicate 1 percent of our retail marijuana sales tax rate for this ambitious, community-centered investment fund for disadvantaged firms.”

Under the proposal, the city would allocate 1 percent of Denver's marijuana sales tax each year from 2023 to 2025 to the fund; the amount is estimated at between $4 to $5 million annually, but would not exceed $15.2 million over the duration. Ultimately, the goal would be to extend the contract and use successful investments to build it into a $50 million evergreen fund.

The Herman Malone Fund would be used for grants, loans and equity investments. Hancock's office calls it Denver's first investment tool program to "level the playing field for minority- and women-owned small businesses." the New Community Transformation Fund would handle the investment program, while DEDO's Division of Small Business Opportunity would provide technical support and consulting for business owners, according to a DEDO presentation shared with council.

"In this case, they'll invest in the companies on our behalf. Any money paid back into the account from successful funding or [other ventures] goes back into the fund," DEDO director of entrepreneurship and innovation Mike Bevis explains. "Research shows that equity financing is one of the better ways to lift companies up quickly. [But] we think the biggest benefits of the program really are the technical assistance and wrap-around services we're providing."

The city hasn't detailed how the New Community Transformation Fund would select applicants, and the venture capital firm didn't respond to requests for comment. The New Community Transformation Fund would be audited "on a periodic schedule" by the city, according to DEDO, which would hold two seats on the fund's investment board and one seat on the advisory board.

Local marijuana sales taxes and licensing fees and sharebacks from state marijuana sales taxes added nearly $143 million to Denver's budget from 2020 through 2021, according to the Denver Department of Excise and Licenses, but dispensary sales have dropped significantly across Colorado this year. If 1 percent of marijuana sales taxes don't reach the planned $5 million, then DEDO will "make an amendment with the vendor to adjust to budget," according to Bevis.

Colorado's marijuana industry has been criticized for its lack of ownership diversity and programs to help victims of the War on Drugs. Over the past few years, the Hancock administration has moved to clear old marijuana possession convictions in Denver and created technical support programs for marijuana business owners from communities impacted by the War on Drugs. According to Bevis, marijuana businesses would be eligible to benefit from the Herman Malone Fund as well, since the money is from local taxes and not federally financed.

The contract with the New Community Transformation Fund was unanimously approved by council's Business, Arts, Workforce, & Aviation Services Committee on October 12, but still needs final approval from the full council. Bevis expects it to go to the full council on October 24 or 31.

Here's a summary of the proposal: