Cannabis Regulation. Costs If You Do Costs If You Don t. CSG 2017 National Conference. Andrew Freedman Freedman & Koski, Inc

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Cannabis Regulation Costs If You Do Costs If You Don t CSG 2017 National Conference December 14, 2017 Barbara Brohl B J Brohl Strategies Andrew Freedman Freedman & Koski, Inc (Former Executive Director Colorado Department of Revenue & State Licensing Authority for Regulated Cannabis Businesses) (Former Director of Marijuana Coordination State of Colorado)

Agenda Costs When Cannabis is Regulated Overview Medical Marijuana Regulation Adult Use Regulation Taxation Costs Areas of Focus Effects on public health and public safety Consumption patterns Youth Use Hospitalizations/Poison Control Center Calls Driving While High Marijuana Arrests Gray Market

Colorado Marijuana Framework & Economy Amendment 20 (Medical) Amendment 64 (Retail Adult Use)

Colorado Commercial Market Two Industry Segments Medical Adult Use / Retail Licensee Based State Licensing Local Licensing Regulatory and/or Criminal Stores, Cultivations, Infused Manufacturers, Testing Facilities, Operators, Transporters

Guideposts Preventing Distribution of Marijuana to Minors Preventing the Involvement of Criminal Enterprises, Gangs, and Cartels in the Legal Marijuana Industry Preventing the Diversion of Legalized Marijuana to Other States

Highly Collaborative Stakeholder Process Use of Stakeholder Work Groups Throughout the Rulemaking Process Law Enforcement Public Health Community Governmental Officials Medical Community Parents Groups Licensed Businesses Benefits Higher Rate of Voluntary Complicance Negotiated Rulemaking

Comprehensive Regulations Regulations Protecting Public Safety Regulations Protecting Children

Video Surveillance

Edibles Regulation: Phase I Emergency Rules July 31, 2014 Permanent Rules October 1, 2014 Compliance by February 2015 to allow for Implementation Child-resistant packaging Serving size limited to 10mg of THC No more than 100mg of THC on a multiple serving edible Physically demarking multiple-serving edible products Incentives for the production of single-serving edibles Labels to include explicit serving size, number of servings and total THC

Edibles Regulation: Phase II Effective October 1, 2016 Attractiveness to Children: Prohibition on candy or candies Pre-manufactured products prohibited (No Gummy Bears) Additional Labeling Requirements Purchase Amount Equivalency Universal Symbol

Universal Symbol October 1, 2016, all marijuana packages and edible products had to be marked with the Universal Symbol After December 1, 2016, no marijuana could be sold without the Universal Symbol

Edibles Regulation: Phase III October 1, 2017 Prohibition on Production or Sale of Edible Retail Marijuana Products or Edible Medical Marijuana-Infused Products in the Shape of: Humans Animals Fruit

Regulatory Activities Business & Individual Licensing Business Initial applications Renewals Change of Ownerships Individual Licensing Owners Managers & Employees Field Enforcement Criminal Investigations Complaint Investigations Compliance Monitoring & Data Analytics Underage Compliance

RFID Tags

Over 1 Million Plants tracked in metrc

Costs To Regulate MED 110 Staff Approximately $12.5 Million TAX 19 Staff Approximately $1.4 Million

Marijuana Taxation Uses School Construction (BEST) Marijuana Purposes MED and Regulatory Oversight Youth Prevention Substance Abuse Prevention and Treatment Public Education Campaigns Taxes $565.7 Million to date Total Tax Collected in FY13-14 $19.5M Total Tax Collected in FY14-15 $88.2M Total Tax Collected in FY15-16 $141.2M Total Tax Collected in FY16-17 $210.4M Total Tax Collected in FY17-18 (to date) $103.2M

On-Going Areas of Focus Edibles Federal Regulatory Assistance Pesticides Banking Diversion

Past 30-day Marijuana Use: 12 17 Years Old

Drug suspension rate per 100,000 students Total suspension rate per 100,000 students School Suspension Rate Total and drug suspension rate, per 100,000 students 600 500 Drug suspension rate 16,000 14,000 12,000 400 10,000 300 200 100 Total suspension rate 8,000 6,000 4,000 2,000 0 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Drug suspension rate 443 437 414 400 391 506 551 534 500 538 509 471 Total suspension rate 13,445 13,267 13,618 12,796 12,632 11,542 11,094 10,454 9,301 8,396 9,058 8,931 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 0 Note: Marijuana was broken out separately fro the first time in 2015-16. There were 2,657 marijuana suspensions (296 per 100,000 pupils) in 2015-16 that accounted for 63% of all drug suspensions. Source: Colorado Department of Education.

School Discipline for Marijuana 2015-16 2015-16 first year of separate reporting for marijuana 2,657 suspensions for marijuana 296 marijuana suspensions per 100,000 pupils 3% of all suspensions 63% of all drug suspensions 195 expulsions for marijuana 22 marijuana expulsions per 100,000 pupils 20% of all expulsions 58% of all drug expulsions 832 law enforcement (LE) referrals for marijuana 93 marijuana LE referrals per 100,000 pupils 22% of all LE referrals 73% of drug LE referrals Source: Colorado Department of Education

Past 30-day Marijuana Use: 18-25 Years Old

Past 30-day Marijuana Use; 26 Years and Older

Number of reported marijuana exposures Marijuana Exposure Calls to Poison Center, by Age Group of Case, 2000-2016 250 25 years and older 225 18-24 years old 9-17 years old 200 0-8 years old Unknown 78 175 90 73 150 125 100 75 50 25 0 25 31 34 35 35 63 30 23 42 26 42 22 21 14 18 12 17 15 18 17 20 16 36 13 10 22 18 19 7 19 10 30 43 48 19 18 18 23 40 19 16 21 17 7 29 26 8 16 15 16 6 7 3 19 16 27 13 11 4 10 8 12 4 15 4 4 6 5 10 7 8 12 3 2 7 11 16 15 4 7 11 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Medical Marijuana Legalized Medical Commercialized Retail Commercialized Produced by: Colorado Department of Public Health & Environment, Environmental Epidemiology, Occupational Health and Toxicology Branch (2016). Data Source: National Poison Data System (NPDS) closed, human, marijuana exposure calls in Colorado from 2000 to 2016, n=1,578.

DUI Citations: Colorado State Patrol 6,000 5,000 4,000 359 213 112 201 684 335 210 107 204 652 389 239 153 244 781 Marijuana only Marijuana & alcohol Marijuana & other drugs Other drugs Alcohol only 3,000 4,820 2,000 4,042 3,610 1,000 0 2014 (Total=5,705) 2015 (Total=4,898) 2016 (Total=4,635) Source: Colorado State Patrol (2017). Note: Drug impairment determination is based on trooper s informed perception and not toxicology results

Fatalities on Colorado Roadways 600 500 400 55 79 11% 16% 99 18% 300 200 426 409 89% 84% 447 82% 100 0 2013 (N=481) 2014 (N=488) 2015 (N=546) Non-cannabinoid positive driver Cannabinoid positive driver Note: A positive test for cannabinoids may be the result of active THC or one of its inactive metabolites and does not necessarily indicate impairment. Source: Data provided by Colorado Department of Transportation, 8/4/2016. 2015 DATA ARE PRELIMINARY AND SUBJECT TO CHANGE

Marijuana Arrests 14,000 12,894 12,000 10,000 8,000 6,000 4,000 5,385-58% 2,000 0 2012 2013 2014 2015 Source: Colorado Bureau of Investigation, National Incident-Based Reporting System.

Marijuana arrest rates (per 100,000) Marijuana Arrest Rates (per 100,000) by Race 500 450 400 350 300-43% 250 200 150 100 50 0 260-65% 219-49% 123 123 124 140 111 91 468 348 275 266 71 35 White Hispanic African-American Other 2012 2013 2014 2015-45% 44 39 Source: Colorado Bureau of Investigation, National Incident-Based Reporting System; U.S. Census Bureau, 2015 American Community Survey.

Total Marijuana Arrests Marijuana Arrests by Age Group 7,000 6,000 5,000 4,000 3,000-23% 6,312 2,000 1,000 3,235 3,400 3,125 3,347 2,481 2,277 2,244-49% 1,709 1,100 1,360-81% 1,195 0 10 to 17 18 to 20 21 or older 2012 2013 2014 2015 Source: Colorado Bureau of Investigation, National Incident-Based Reporting System.

Marijuana Gray Market: The Routes to the Gray Market Amendment 20 Medical Amendment 20 allows for patients and patient s caregivers to home grow marijuana plants Amendment 64 Recreational Amendment 64 allows for individuals and cooperatives to home grow marijuana plants Caregivers Doctors Each caregiver can cultivate up to 99 plants for patients (SB 15-1514) Doctors may recommend patients up to 6 plants with up to 3 flowering. This may be increased up to 99 as medically necessary Patients +99 Each patient can cultivate up to 6 plants (up to 3 flowering) or up to 99 as medically necessary +6 to 99 Cooperatives Residents get together and assist each other in growing allotted six plants. They may not operate in the same location as caregivers. Otherwise, they are unregulated so there is, theoretically, no limit to the number of individuals and plants +Unknown Limitation Gray Market +6 Individuals Each individual can cultivate up to 6 plants with up to 3 flowering When combined, recreational and medical marijuana legalization has contributed to a large, unregulated market with gray marketeers operating under the guise of caregivers, cooperative members, or law abiding residents. 2

Thank You For more information: Barbara@BJBrohlStrategies.com 720.252.8423 Andrew@FreedmanKoski.com 720.588.2164