Colorado Cannabis Business Law: A Look Back

Ten things to know about Colorado’s cannabusiness laws

Dr. Nguyen Van Falk

Everyone’s heard by now that voters in the Centennial State made history last November with the victory of Amendment 64 allowing adults 21 and older to possess a small amount of Cannabis for personal use. That’s clearly in the state’s constitution now. What was less clear was how the state would regulate Cannabusinesses.
 
One of the biggest questions is how this market will be taxed. Washington State’s legalization initiative included taxes at every stage from growth to sale, and they’re now in the midst of figuring out their own regulations. Colorado’s amendment didn’t spell that out, though, which gave legalization opponents a window of opportunity to overturn the will of the people. In the end, the legislature reached a compromise and House Bills 1317 and 1318 regulating and taxing Cannabis were passed.
 
Before you get to celebrating, there’s a lot that you need to know about these laws. It’s so much that you should strongly consider hiring a lawyer before you open for business on Jan. 1, 2014 at the earliest. See the sidebar on key dates to watch for as you plan to roll out your business. So without further ado, here are 10 key things to know about Colorado’s Cannabusiness laws:
 
Residency requirement
Either way, all business owners must have resided in Colorado at least two years prior to applying for a license. Only Colorado residents can own, work or invest in retail Cannabis businesses, and everyone involved will be subject to a criminal background check. Before applying for any license, it would be smart to send in a letter of intent first, since the State is giving first reviews to those who sent in their letters. 

Medical preference
Existing medical Cannabis growers and dispensers have preferred status under this law. There are three main retail licenses, along with a fourth I’ll mention in a bit: the stores that sell directly to customers, the manufacturers who make products for these stores, and the growers who cultivate Cannabis for both. The application fee for any of these is $500 if you have a current medical Cannabis license, compared to $5,000 for applicants who don’t, and those who don’t will have to wait at least nine months longer to open for business. Also, medical Cannabis license holders can convert over to retail or they can keep their existing license and add one for retail. If they do that, they must either keep the two operations physically separate or only sell to people 21 and older.

Testing facilities
There’s one exception to this delay for applicants who don’t have an existing medical Cannabis license, and that’s if they’re applying for the fourth type of business: retail Cannabis testing facilities. These are the research firms that will be testing and certifying the purity and potency of Cannabis, which can open Jan. 1 regardless of whether they had a medical Cannabis license or not.

From seed to sale
The state will be setting up a “Seed-to-Sale” tracking system that traces all retail Cannabis from when it’s a seedling to when it’s sold as a product to a customer. They’ll require everything be tested for harmful contaminants like pesticides, poisons, molds and microbes like E. coli, as well as for THC potency, which will be needed for labeling. Speaking of labeling, every room on your premises that contains Cannabis will have to be clearly labeled as such.

 
Taxation

Every Cannabis sale or transfer from a grower to a product manufacturer or retailer also has to verify that it was taxed at 15 percent of the average market rate. This is the excise tax on retail Cannabis production. Once it gets to the retail seller, they have to collect a 10 percent sales tax on all customer purchases, on top of existing sales taxes. This assumes, of course, that Colorado voters will approve these taxes this fall: the state requires tax hikes be approved by voters, so this is the last real hurdle left.
 

Inventory restrictions
Growers eventually will be able to sell to third parties, but for the first nine months product makers and retailers can only process or sell Cannabis grown in cultivation centers which they are licensed to own. Even once Oct. 1, 2014 rolls around, you can still only sell up to 30 percent of your current inventory to any given retailer. And it’s important to note that under the new law, incorporated Cannabis collectives are banned in Colorado.
 
Know your customer
Under the law you have to check each customer’s ID – and not just for their date of birth – since Colorado residents can buy up to one ounce of Cannabis at a time while out-of-state customers can only buy up to a quarter-ounce at a time. Customers also will have to be physically present at your store for the sale to be legal, so no selling over the Internet, no mobile distribution centers and no delivery sales.
 
Obscene gesture
What’s likely to be the most controversial piece of these new laws is the treatment of Cannabis-themed magazines like pornography, with stores having to keep all such publications behind the counter. Obscenity laws aren’t new, but treating pot like hardcore porn certainly is, and several publishers have already threatened lawsuits against the state on First Amendment grounds.

No on-site sampling

Customers will have to wait until leaving the premises to sample or even open their purchases, which will have to be kept in child-resistant packaging and carried out of the stores the same way as liquor bottles, in opaque paper or cloth bags. There will be no Cannabis coffee shops or bars, and for that matter no retailer can sell edible products that don’t contain Cannabis – no, not even candy or soda. But at least you’ll be able to sell stuff like Cannabis accessories and apparel.

Local control
Take everything written above with a grain of salt, since your local governments will have their say as well, and they may say “No.” According to a report in The Denver Post, as of mid-May the Denver City Council was still trying to decide whether they would allow retail Cannabis businesses or not, a process that likely is being repeated in municipalities throughout the state. Check with your local government to see what additional taxes, rules and regulations they’re imposing.
 
And this is only the beginning: specific rules for each class of license will be coming soon from state regulators, governing everything from testing protocols for researchers to serving sizes for edibles, from marketing, labeling and packaging to how clean and secure your store is. We’ll be sure to help make you aware of those once they’re released. 

 

Save the Date!

Key dates to plan for as you consider creating your cannabusiness venture in Colorado:

July 1, 2013: Colorado sets its rules and regulations for retail marijuana businesses.

Oct. 1, 2013: Retail applications begin for current medical marijuana license holders; also, non-medical licensees can still apply for marijuana testing facility licenses.

Jan 1, 2014: The first day stores with retail licenses can legally open for business; also, non-medical licensees now can send in letters of intent to apply for a retail license.

July 1, 2014: Non-medical licensees finally can start to apply for retail licenses. Remember to send in your letter of intent first.

Oct. 1, 2014: Retail store owners who did not already  have medical marijuana licenses can officially open for businesses; also, retail stores can finally sell marijuana grown in someone else’s cultivation center.