Cannabis use, businesses continue growth

When driving through Boulder and Denver, evidence of marijuana legalization is everywhere. Shops selling cannabis and paraphernalia and grow houses have proliferated since retail legalization in January 2014. About two-thirds of communities in the state have resisted the pull of marijuana revenue and don’t allow cannabis sales or cultivation. Some, like the city of Loveland, are putting the question before voters this November.   

So what has legalized marijuana meant to Colorado? The industry has created hundreds of new jobs and small businesses catering to the cultivation, sales and use of marijuana.

“It has been an evolution,” said Shannon Gray, communications specialist for the state Department of Revenue’s Marijuana Enforcement Division. There are 41,000 people in Colorado who have applied for occupational licenses to work in Colorado’s marijuana industry. That doesn’t mean there are that many jobs available, said Gray.

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There are slightly fewer than 3,000 business licenses, including grow facilities, stores and centers, transporters and infused product manufacturers, in the state. The industry has pumped $1 billion in tax revenue into the state economy since legalization in 2014. Colorado charges a 15 percent excise tax and a 15 percent sales tax on cannabis products. Many local governments have also added their own taxes to businesses and sales in their districts.

Of the 64 Colorado counties, one-third allow the sale, cultivation or manufacturing of marijuana, or a combination of those three, according to the Colorado Department of Public Health and Environment. The biggest population centers in the state, including Denver, Boulder and Pueblo, and mountain towns along Interstate 70, seem to be the marijuana hot spots.

Gray said that the Department of Revenue collects $15 billion in tax revenue from all sources each year and the overall state budget is $32 billion. Marijuana funds equate to $266 million of that, “so once you break it down into different funds, it is really just a drop in the bucket overall. There is money going back to the state and it’s a good thing, but it is not necessarily a cash cow,” Gray said.

Voters thought most of that revenue would go to help fund education in the state, but that is not how it has turned out. The first $40 million of pot tax revenue each year does get divided among the state’s many school districts but the rest gets divvied up however each municipality wants to use the funds.

The business of marijuana

Because marijuana is still illegal nationally, many financial institutions won’t allow marijuana businesses to put money in the bank, take out lines of credit or loans or mortgages on their buildings.

Jim Marty, a certified public accountant and CEO and founder of Bridge West LLC, has worked with the cannabis industry for 10 years. He said that many businesses in the state are unbanked, meaning they have to pay all of their bills in cash.

“It is dangerous and inconvenient when the only way to pay is in a face-to-face meeting,” he said. He said the IRS continues to prevail in court when it comes to allowing marijuana businesses to take tax deductions. So far, they aren’t allowed to because they are considered drug traffickers.

Because of that “it makes it very challenging to attract and raise large capital,” Marty said. “It makes it hard to make a profit. It is still possible to make a profit in the marijuana industry but they have to do everything right.”

That means leaving a high enough margin on their products that they can still make some money after they pay their taxes and overhead.

“Many of our clients have been in it for four or five years and all they have to show for it is they owe the IRS $1 million. That can happen very easily,” Marty said. Many people open a business because they think they can make a lot of money at it, but they’ve never grown a plant before, he said.

“It helps to have a scientific plant-based background. It is all about the cultivation. That is the most important thing. If you grow good cannabis, you can definitely sell it, whether or not your business model is set up to make a profit,” he said.

There are five or six financial institutions in Colorado that now allow marijuana businesses to have a checking account. They still can’t have lines of credit, bank loans or mortgages, however. Marty said he is hopeful the industry will continue to evolve and that, eventually, cannabis businesses will be treated the same way as other businesses.

“If they could get access to financial services and take all the deductions, we would have a globalized industry. Until then, it is a specialized industry and very difficult to make a profit,” he said.

Lessons learned

The Marijuana Enforcement Division wants to prevent as many unintended consequences as it can prior to new rules being developed each legislative session. The division has a lot of rule-making authority. It gathers a group of diverse stakeholders at the table, including public health advocates, law enforcement, licensees, the general public and business owners, to talk through any proposals that are out there so “we know what the general consensus is and what the rules will do once adopted,” Gray said.

Two things the division has learned since legalization is that the state’s production management system that prevents marijuana oversupply has been a success, and that not enough thought was given to how edible cannabis products would be regulated.

When marijuana was first legalized, there weren’t any regulations around edibles. “We didn’t have individual serving sizes denoted. You could have accidental ingestion or overconsumption because it wasn’t properly labeled or packaged,” she said.

A recent bill that was signed into law hopes to change that. Beginning Oct. 1, every single serving of edible marijuana —  10 mg of THC —  must be individually marked, stamped or imprinted with the new universal symbol. Every container of medical and retail marijuana must be labeled with relevant information for consumers, including a potency statement and a contaminant testing statement.

“With the new universal symbol, people can more easily identify marijuana products, monitor their intake by serving size and avoid eating too much,” said Dr. Larry Wolk, executive director and chief medical officer at the Colorado Department of Public Health and Environment, in a statement. “And by making marijuana labels less appealing to children, we hope to keep them from accidentally eating THC and suffering the consequences.”

The MED’s production management system is a tiered system that keeps tabs on the number of plants each licensee can grow. If people want to increase the number of plants they can grow, they have to get approval through the Department of Revenue. It helps prevent oversupply issues that could lead to the illegal sale of pot out the back door.

“The industry is self-regulating. Overall, our industry folks are very responsible in growing the right amount of marijuana,” Gray said.

The Marijuana Enforcement Division has an inventory tracking system. When a plant reaches 8 inches tall or wide, it has to be tagged with an RFID tag, similar to the barcodes placed on luggage at the airport. It tracks each plant from harvest to sale, whether that be in flower, concentrate or edible form, Gray said. The system must be updated daily by licensees.

“We have access to that system in real time. We have analysts looking to see if there are anomalies,” she said. The division also has the ability to pull up video footage to prove someone destroyed the plants they said they destroyed.

There is still an illicit market in Colorado, she added, but it “primarily sits outside the regulated industry.”

One of the biggest challenges for law enforcement in Colorado is that people are growing plants at their homes —  they can legally grow six plants in that space.  Many illegal grows are located in rural areas but some involve people who claimed to be growing medical marijuana for themselves and other people.

“There was essentially a gray area in the law and law enforcement asked the legislature to step in,” said Gray. The law now says that there can be no more than 12 plants in a residence. If the homeowner is a caregiver, meaning he or she is  growing plants for other people who are using it for medical purposes, the plants must now be grown in a commercially licensed plant. If law enforcement walks into a home with 500 plants, it is an illegal grow, she said.

Many illegal grows are shipping their products across state lines because they can make more money that way.

Education and health impacts

The Colorado Department of Public Health and Environment is in charge of educating the public about marijuana use and monitoring the potential health effects, said Jessica Neuwirth, retail marijuana education and youth prevention coordinator for the CDPHE.

In a 2018 report, the department found that marijuana use by Colorado adults 18 years old or older increased from 13.6 percent in 2016 to 15.5 percent in 2017. Both the National Survey on Drug Use and Health, and the Behavioral Risk Factor Surveillance System, which is a telephone survey of adults over the age of 18 that is sponsored by the U.S. Centers for Disease Control and Prevention, found that adult marijuana use in Colorado is significantly higher than the national average.

Nearly 9 percent of adolescents in middle school use marijuana and those numbers increase in high school, she said. Neuwirth’s department targets its social media and mass marketing campaigns to that age group as a way of preventing use or experimenting before they start.

The department gives youth from middle school to early high school age information on marijuana’s effects and how that is meaningful and relative to them.

“One of the biggest reasons young people choose not to use marijuana is that it can get in the way of what they want for their immediate future,” she said, like getting on the basketball team or maintaining their mom’s trust. They need to know what their goals are in life, outside of marijuana use.

The health department said there is some misinformation out there that it is safe to drive while under the influence of marijuana because it metabolizes differently than alcohol.

“The research shows you are more likely to get into a car accident if you are high than if you are not,” she said. But marijuana can affect people differently. A new user, for instance, may take one hit of marijuana and be driving impaired. A medical marijuana user, who is used to ingesting larger amounts of the substance on a daily basis, may not be impaired because of it.

A couple of new marijuana bills passed in 2019. One determines who can invest in local marijuana businesses, one implements new licensing requirements for the delivery of medical and retail marijuana, and a third gives the people the right to form marijuana hospitality establishments, where patrons can use marijuana, they bring themselves, in a group setting.

One thing Colorado has done well is that it restricts marijuana advertising, said Neuwirth. Yes, people are exposed to marijuana when they walk by retail dispensaries, but the state doesn’t allow those businesses to openly advertise their products.