Mayor Michael Hancock is pushing the Denver City Council to approve an allocation of $15.2 million in marijuana tax revenue for a business investment fund.
Plans for the Herman Malone Fund, created by the Hancock administration and the municipality Economic development and opportunities department (DEDO), call for it to only benefit minority and women-owned businesses, according to Hancock’s office. Named after the late Herman Malone, a legendary local businessman, the fund was previously created using a 1% allocation from the city’s marijuana sales tax revenue, but Hancock and DEDO need City Council approval to operate the fund.
Later this month, council is expected to consider an application to approve a partnership between the city and the New Community Transformation Funda Denver venture capital firm that invests in start-up companies founded by owners from marginalized communities.
“Historic inequalities and systemic marginalization continue to prevent underserved Denver business owners from transitioning to sustainable growth and creating multigenerational wealth. My administration is committed to leveling the playing field,” Hancock said in a statement announcing the $15.2 million proposal. “These challenges stem primarily from decades of lack of access to capital. That’s why I’ve proposed that Denver dedicate 1% of our marijuana retail sales tax rate to this ambitious community investment fund for disadvantaged businesses.
Under the proposal, the city would allocate 1% of Denver’s marijuana sales tax each year from 2023 to 2025 to the fund; the amount is estimated between 4 and 5 million dollars annually, but would not exceed 15.2 million dollars over time. Ultimately, the goal would be to extend the contract and use successful investments to turn it into a permanent $50 million fund.
The Herman Malone Fund would be used for grants, loans and equity investments. Hancock’s office calls it Denver’s first investment tools program to “level the playing field for minority and women-owned small businesses.” the new community transformation fund would manage the investment program, while DEDO’s small business opportunities division would provide technical support and advice to business owners, according to a DEDO presentation shared with the board.
“In this case, they will invest in the businesses on our behalf. Any money returned to the account as a result of successful funding or [other ventures] goes back into the fund,” says Mike Bevis, DEDO’s Director of Entrepreneurship and Innovation. “Research shows that equity financing is one of the best ways to move businesses forward quickly. [But] we think the biggest benefits of the program are really the comprehensive technical support and services we provide.”
The city did not say how the New Community Transformation Fund would select applicants, and the venture capital firm did not 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 Sharing of State Marijuana Sales Taxes added nearly $143 million to Denver’s budget from 2020 to 2021, according to the Denver Excise and Licensing Department, but dispensary sales have dropped significantly across Colorado this year. If 1% marijuana sales tax does not reach the $5 million target, then DEDO “will make an amendment with the seller to accommodate the 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. In recent years, the Hancock administration has moved to erase old marijuana possession convictions in Denver and created tech support programs for marijuana business owners in communities affected by the war on drugs. According to Bevis, marijuana businesses would also be eligible to benefit from the Herman Malone Fund, since the money comes from local taxes and not funded by the federal government.
The contract with the new Community Transformation Fund was unanimously approved by the council’s Business, Arts, Labor and Aviation Services Committee on October 12, but has yet to be approved. by the whole council. Bevis expects it to go to the full council on October 24 or 31.
Here is a summary of the proposal: