Colorado s Cannabis Experience Doug Friednash (dfriednash@bhfs.com) Brownstein Hyatt Farber Schreck, LLP Denver, Colorado 1
Marijuana in the US 62% of Americans say the use of marijuana should be legal. That is double what it was in 2000. 89% support medical marijuana use. Medical cannabis is legal in 32 states; cannabis for recreational purposes is legal in 10 states, plus the District of Columbia; 13 states have decriminalized it (but not legalized it). These could be the next states to legalize marijuana: Illinois, New Jersey, New York, Minnesota, and, Wisconsin. Since 2015, cannabis has become the fastest growing industry in the U.S. If cannabis becomes legal in all 50 states, the industry will become larger than the organic food market. 2
Marijuana Impact Nationally There are now over 10,000 licensed cannabis businesses in the United States; 121,000 people employed in the industry; and over 2 million medical marijuana patients served by the industry. In 2016 it is estimated that there were $5.8 billion in sales of legal cannabis across the United States. As legalization expands in the United States and abroad, these rising trends will continue. Analysis shows that if marijuana were fully legal in all 50 states, it would create at least a combined $131.8 billion in in federal tax revenue between 2017 and 2025. The study also calculates that there would be 782,000 additional jobs nationwide if cannabis were legalized today, a number that would increase to 1.1 million by 2025. That includes workers at all ends of the marijuana supply chain, from farmers to transporters to sellers. 3
Cannabis and the Law The federal government still strictly prohibits marijuana. Under the scheduling system, the federal government classifies cannabis as a schedule 1 drug (no medical value and a high potential for abuse). This summer, Senators Gardner and Elizabeth Warren released a bipartisan bill Strengthening the Tenth Amendment Through Entrusting States Act ( STATES Act ). Even if it passes, cannabis will remain Schedule I, but it would allow each state to address commercial cannabis. State-approved commercial cannabis activity would cease to be considered drug trafficking and assets used in legal cannabis operations would not be subject to forfeiture. Currently, pot s federal criminal classification has serious ramifications for cannabis businesses. o For example, many state-legal marijuana businesses function as cash-only enterprises since many banks are nervous about dealing with businesses that are essentially breaking federal law. o Businesses also can t file for several deductions and, as a result, their effective income tax rates are extremely high. 4
Colorado s Cannabis Timeline 2000 Voters Pass Amendment 20 2001 08 Personal cultivation 2008-09 Commercialization 2010 Colorado Legislature Regulates Medical MJ 5
Colorado s Cannabis Timeline 2012 Voters Pass A. 64 2013 A. 64 Task Force 2014 Commercial sales begin 6
Colorado s Cannabis Industry Economic Impact An October 2016 report from the Marijuana Policy Group found that legal cannabis activities in Colorado generate $2.39 billion in annual state output. Legal cannabis activities also created more than 18,000 new full-time equivalent positions. 7
Statewide Coordination Efforts In Colorado, 12 agencies are engaged in the execution of the state s adult-use and medical marijuana programs. Governor, Revenue, Public Safety, Transportation, Public Health, Education, Human Services, Agriculture, Natural Resources, Information Technology, Local Affairs, Regulatory Agencies. Within the Governor s Office, one individual oversees all marijuana policy issues and coordinates interagency efforts. 8
Licensing Department of Revenue Maintaining closed-loop system Seed-to-sale tracking Production management Security Requirements Compliance and enforcement 9
Department of Public Safety Data collection and analysis Extra-regulatory enforcement Impaired driving enforcement 10
Department of Transportation Impaired driving law enforcement training Impaired driving public education campaigns 11
Department of Public Health and Environment Medical marijuana patient registry Public education campaigns Youth use prevention Safe, responsible and legal use 12
Department of Agriculture Regulation of hemp production Pesticide testing and enforcement 13
Role of Local Governments Opt in/opt out Licensing and regulation Zoning Compliance and enforcement 14
Colorado s Cannabis Industry State Licenses Number of Licensed Cannabis Businesses Type Medical Retail Retail Outlets 500 529 Cultivations 739 735 Product Manufacturers 255 284 Testing Facilities 11 12 Operators 6 8 Transporters 8 9 Total 1,519 1,577 15
Colorado s Cannabis Industry Licensed Sales 16
Colorado s Cannabis Industry Licensed Sales Calendar Year Total Cannabis Sales Total to Date Growth Rate 2014 $683,523,739 $683,523,739 2015 $995,591,255 $1,679,114,994 45 percent 2016 $1,307,203,473 $2,986,318,467 31 percent 2017 $1,507,702,219 $4,494,020,686 15 percent 17
Current Adult Marijuana Use (used in the past 30 days) 13.6% 13.4% Data Source: Colorado Behavioral Risk Factor Surveillance System 2017. 18
Average Market Rate 1 lb Wholesale Flower 19
Colorado Flower Pricing vs. Sales Volume 20
Colorado s Cannabis Tax Structure Adult-Use Cultivation 15% excise tax Retail Cannabis Store 15% sales tax Adult-Use Consumer Medical Cultivation Medical Dispensary 2.9% sales tax Medical Consumer * Cities and counties may also impose local sales and excise taxes 21
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Colorado s State Fiscal Year Budget 23
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Marijuana Arrests The total number of marijuana arrests decreased by 52% between 2012 and 2017, from 12,709 to 6,153. Marijuana possession arrests, which make up the majority of all marijuana arrests, were cut in half (-54%). Marijuana sales arrests decreased by 17%. Arrests for marijuana production increased appreciably (+51%%). The number of marijuana arrests decreased by 56% for Whites, 39% for Hispanics, and 51% for Blacks. The marijuana arrest rate for Blacks (233 per 100,000) was nearly double that of Whites (118 per 100,000) in 2017. Separate data provided by the Denver Police Department s Data Analysis Unit indicates an 81% decrease in total marijuana arrests, from 1,605 in 2012 to 302 in 2017. The most common marijuana industry-related crime in Denver was burglary, accounting for 59% of marijuana crime related to the industry in 2017. 26
Violent Crime in Colorado 27
Illegal cultivation on public land The number of plants seized on public lands increased. There were 80,926 plants seized in 2017, up 73% from 46,662 in 2012. 28
Diversion to other states The Colorado Information Analysis Center (CIAC), located in the Department of Public Safety, compiled data from the El Paso Intelligence Center (EPIC), manages a database in which law enforcement agencies can voluntarily report drug seizures. The number of seizures for Colorado-sourced marijuana reported to EPIC increased from 286 in 2012 to 608 in 2017. The types of marijuana products seized has changed over time, with marijuana concentrates accounting for 26% of seizures and edibles accounting for another 16% in 2017. In 2012, both of those categories combined accounted for 10% of marijuana seizures reported to EPIC. 29
Traffic Safety The total number of DUI citations issued by the Colorado State Patrol (CSP) decreased from 5,705 in 2014 to 4,849 in 2017. The prevalence of marijuana or marijuana-in-combination identified by Patrol officers as the impairing substance increased from 12% of all DUIs in 2014 to 15% in 2017. According to CDOT, the number of fatalities in which a driver tested positive for Delta-9 THC at or above the 5.0 ng/ml level declined from 52 (13% of all fatalities) in 2016 to 35 in 2017 (8% of all fatalities). The number of fatalities with cannabinoid-only or cannabinoid-in-combination positive drivers increased 153%, from 55 in 2013 to 139 in 2017. However, note that the detection of any cannabinoid in blood is not an indicator of impairment but only indicates presence in the system. Detection of Delta-9 THC, one of the primary psychoactive metabolites of marijuana, may be an indicator of impairment. A 2017 survey conducted by the Colorado Department of Public Health and Environment found that 3.0% of adults reported driving within two-to-three hours of using marijuana in the past-30 days, while 19.7% of recent marijuana users reported this behavior. 30
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Doug Friednash dfriednash@bhfs.com 303-223-1221 Albuquerque Atlantic City Carson City Denver Las Vegas Los Angeles Orange County Reno Sacramento San Diego Santa Barbara Washington DC 40