The State Of Colorado's Marijuana Industry, Five Years In

Oct 3, 2019

It's been over five years since the legalized marijuana market launched in Colorado. This week, KUNC's Colorado Edition produced a series of reports on what we know about the marijuana industry in our state. 

Ken Amundson, the managing editor of BizWest, joined us to discuss the current and future state of the industry. KUNC's Esther Honig talked about the state of the illegal market, and Dan Mika, reporter for BizWest, talked about future national legislation and what this could mean for the industry. 

THE STATE OF THE LEGAL MARKET

Erin O'Toole: Five years after recreational cannabis for adults was legalized, where do things stand for the marijuana industry in Colorado?   

Ken Amundson: There's been substantial growth in that industry from various sectors. It has kind of changed how Americans — and Coloradans in particular — perceive that industry. The acceptance is overwhelming.

Let's talk sales and usage. What do the numbers say? 

It's a very regulated industry — everyone has to have a license to operate. And there are 41,000 people who have applied to work in the industry. There are 3,000 business licenses in Colorado. That would include dispensaries, grow operations, processing plants and that sort of thing.  

What products are selling the most?   

Cannabis that can be smoked is still the most popular, probably, but edibles are gaining on that. And gummy bears are the most popular edible. 

How much has the state gotten in tax revenue — and where is that money going? 

A billion dollars has been raised since 2014; and $266 million annually is what the state tax revenue is. That looks like a big number but it's really a drop in the bucket when it's compared to the state budget, which is $32 billion.  

But to line that out, there are three different areas where the state derives tax revenue. One would be a 15% excise tax, and most of that money — in fact all of that money — goes to schools, most of it to capital construction and some of it to operations for schools. Then there's a 15% special sales tax on retail marijuana – this does not apply to medical marijuana, just recreational, retail marijuana. And 90% of that goes to the state government, 10% goes to local governments. And of the state's 90% share, about 12% of that goes to schools, 15% goes into the general fund, and 71% goes into the so-called "Marijuana Tax Cash Fund." 

 And of course, the standard sales tax, 2.9%, is also charged, and all that money goes into the Marijuana Tax Cash Fund. And that's used for health, substance abuse, health education, that sort of thing. 

What are the projections, going forward, for the industry? 

Well, as I mentioned, there's anticipated a 14% growth in sales of marijuana over the next six years – 14% each year for the next six years. That projection does not anticipate the addition of other states legalizing marijuana, nor does it anticipate changes after the 2020 elections. If there's a change at the federal level that would make things less difficult for businesses, perhaps that would grow even more. 

Credit Douglas County Sheriff's Office

THE STATE OF THE ILLEGAL MARKET

 

Henry Zimmerman: Despite marijuana being legal, there is still a black market. Can you explain why?  

Esther Honig: So there’s still a black market, and in the simplest terms it’s there because marijuana is still illegal federally. So there are many states where it’s still heavily restricted, and there’s a market there for illegal marijuana, so I can grow marijuana in Colorado, I can ship it, or get someone to transport it for me across several states, and then it’s going to sell for three to four times the value that it would in Colorado. There is just so much money to be made that it’s an easy opportunity for any entrepreneur, so to speak, who’s willing to take that risk. 

What do we know about how big the black market really is?  

What’s really interesting about any sort of illegal industry honestly, is that you’re really only going to know how big it is depending on the resources that you can dedicate to tracking it down.  

I spoke to George Brauchler. He’s the district attorney with the 18th Judicial District, so that’s in Denver, he gets most of these cases in his district. So they track down a lot of illegal marijuana operators in their area; they have more cases than any other district. But he admits it’s also because they have more funding to go after it, compared to a rural county. Here’s what he said:  

“We have a thriving black market here in the 18th Judicial District, but not just here, my guess is all over the state.” 

I’ve talked to folks in other parts of the state, more rural areas where law enforcement is limited, and they might see it happening. It might take them months to be able to collect the information, so that they can get a warrant to search the house to take down that operation. It’s a lot of manpower, it’s a lot of resources not a lot of them have. 

How do people in this legal market in the state feel about those operating illegally? Surely that’s seen as competition. 

It’s absolutely competition. I spoke to Scott Brady — he manages Smokey’s 420, that’s a marijuana grow and dispensary in Weld County. He sees the illegal operations, he called it a "black eye" on their industry, because these folks operate with no oversight. We don’t know what they’re using to grow the plants, whether it’s a toxic pesticide and that has been a problem in the past, they don’t care about their costumers health or satisfaction, and so he feels that his operation gets lumped in with the illegal operations in the public perspective on marijuana. This is what he told me: 

“Each time someone in the black market sells a gram, they’re taking it right out of my people’s pockets at the end of the day.” 

What would it mean for the illegal market here in Colorado if we were to see marijuana legalized federally? 

I think it means one of two things. First, within our legal market we’ve seen a little bit of slowdown in terms of growth, and that has to do a lot with other states becoming legalized and their markets are taking off and people no longer having to say travel to Colorado to take part in weed tourism.  

But when it comes to the black market, everyone I’ve spoken to — from George Brauchler, who’s the district attorney, to black market marijuana dealers and growers — they’re all in agreement, that the solution is federal legalization. If you legalize this federally, you take away the market, you take away that economic incentive to ship this stuff across the country to Mississippi and sell it for three to four times the price, and while you won't necessarily eradicate it entirely, you’ll replace the majority of it. You’ll really do away with how robust and efficient the market is operating currently.  

Credit Brett Levin / CC BY 2.0

HOW NATIONAL LEGISLATION COULD AFFECT THE INDUSTRY

Erin O’Toole: Let’s start by talking about new legislation that passed in the House of Representatives last week. That’s the SAFE Banking Act. What is this and why is it needed?   

Dan Mika: The SAFE Banking Act has two different major provisions. The first one would allow companies that deal in marijuana, whether they are grow houses, whether they are dispensaries, to be able to deposit, and use the same kind of checking and banking accounts that normal businesses can do.

At the moment, most dispensaries and most grow houses have to either deal in all cash, which means sometimes having to carry out their sales taxes and depositing that in cash. I know that some dispensaries use a cryptocurrency wallet to be able to take credit card transactions, and there are some specialty banks that will take marijuana business accounts, but charge very high service fees because the main issue they are worried about is that the federal government will look at them taking money from a substance that is federally illegal, and bringing it into the federal banking system. The Feds view that as money laundering, so to speak.  

So this bill would allow banks to deal with marijuana companies without fear of appraisal. And the second part of that is it would also create a safe harbor for businesses that work with marijuana companies, so this can be anything from allowing landlords to be able to rent buildings and office space to dispensaries or grow houses, to electricians or contractors to do just basic repairs. Right now they face the same problem. 

This bill passed only in the House. What is next for it? 

It passed with a fair amount of bi-partisan support in the House. All but one House Democrat voted in favor of it, and about 47% of House Republicans voted in favor of it, so not a majority but it shows that there is at least a bit of a turning tide in the House.  

Now it goes over to the Senate, where it will be co-sponsored partially by Sen. Cory Gardner of Colorado. I see it having a bit of a tougher time getting through the Senate as right now they are still working towards other big issues like trade, they might have to deal with the ongoing presidential impeachment Inquiry at some point. And Mitch McConnell, the Senate majority leader, even though last year he spearheaded the efforts to legalize hemp, he has shown really no support at all for legalizing marijuana. 

So even though we have a growing number of states nationwide — starting with Colorado, but including a lot of big populated states like Washington state, like California, like Illinois — really starting to take on medical and recreational marijuana, there still may be some resistance to it when it gets into the Senate. 

What would this mean for marijuana businesses in Colorado, and in other states where it’s legal too, if this passes? 

It would add another layer of credibility, so to speak. It would treat marijuana businesses like it would liquor stores, to a certain extent.  

They would be able to have greater access to the financial system, which means it would allow more people to start a dispensary or start a grow house or start another marijuana related business without having so much cash up front. So I think if it does pass, and it does get to President Trump’s desk and he signs it into law, we’re going to see a lot more small and independent dispensaries come out, a lot more people who don’t have the private backing, they’re going to go out and try to stake a little claim of this little green rush we’re seeing. 

This conversation is part of KUNC's Colorado Edition for Oct. 2. Listen to the full episode here