Joint select committee meets to hash out pot regs

The Colorado Statesman

Establishing regulatory framework for legalization of adult-use marijuana in Colorado could come down to a last-minute effort by the legislature after an implementation task force on Wednesday issued a 165-page report to lawmakers and the governor’s office with 58 policy recommendations.

Jack Finlaw, co-chairman of the Amendment 64 Implementation Task Force and chief legal counsel to Gov. John Hickenlooper, called the report a “gift” for lawmakers.

“I see this as a gift that we’re giving the legislature, and fortunately, I think they see it that way as well,” Finlaw told reporters at a news conference Wednesday morning at the new Ralph L. Carr Colorado Judicial Center.

Lawmakers are certainly thankful for the nearly three months of work that the 24-member task force — convened by the governor — put into establishing the state as a national model for governing marijuana legalization. But fears are rising over whether the legislature will have enough time to implement the rules by the end of the legislative session, as is required by voters under Amendment 64.

The Department of Revenue must adopt regulations passed by the legislature by July 1. If the legislature can’t pass the rules by the end of the regular session — May 8 — then the governor would likely call a special session.

The Joint Select Committee on the Implementation of the Amendment 64 Task Force Recommendations — convened by legislative leaders — met for the first time on Friday. There is no pun intended. It is called “joint” because members include lawmakers from both the House and Senate. Its purpose is to propose the many bills that will be needed to implement a legalization model.

In addition to the four lawmakers who sat on the task force — Reps. Dan Nordberg, R-Colorado Springs, and Dan Pabon, D-Denver, and Sens. Vicki Marble, R-Fort Collins, and Cheri Jahn, D-Wheat Ridge — the 10-member committee also includes Reps. Brian DelGrosso, R-Loveland, Jenise May, D-Aurora, and Jonathan Singer, D-Longmont, and Sens. Randy Baumgardner, R-Cowdrey, Gail Schwartz, D-Snowmass Village, and Jessie Ulibarri, D-Commerce City. Pabon and Jahn chair the committee.

DelGrosso acknowledged that he is concerned about time, suggesting, “At this pace… It’s going to be November before we get this thing put together… I’m just worried that we’re going to be back here at the end of May in some sort of special session.”

Pabon attempted to alleviate fears by stating emphatically, “That is not going to happen.”

House Minority Leader Mark Waller, R-Colorado Springs, is also concerned that one task force is rolling into yet another committee, which is only going to slow the process, forcing a midnight-hour decision on how to best regulate recreational cannabis.

“Here we are two months into the session, no legislative package out of the governor’s task force on the implementation of Amendment 64,” Waller told reporters on March 7. “Now what are we doing? We’re creating, effectively, yet another task force on drafting legislation.

“I’m worried that we’re going to be dealing with this marijuana issue at the 11th-hour of the session, and that concerns me greatly,” he continued.

Progress made

The committee did make modest progress during its first meeting on Friday, voting unanimously to draft legislation that would:

• Memorialize not to establish a state-run regulatory model;

• Issue licenses conditionally and with the permission of local governments;

• Convert the Medical Marijuana Enforcement Division into a new Marijuana Enforcement Division;

• Develop rules to ensure the safe transport of marijuana between businesses and labs; and

• Develop a mechanism to track, measure and properly destroy marijuana and ensure that private citizens can legally dispose of marijuana.

But the committee chose to lay over a more controversial regulatory question over whether legalization should apply to nonresidents, such as out-of-state tourists. The task force recommended extending legalization to nonresidents.

Earlier in the hearing, DelGrosso raised fears about opening it up to tourists, worried that there could be a liability placed on retail establishments if they sell to a nonresident who then brings marijuana back to their state where it remains illegal. He said border state Wyoming is already running advertisements warning residents that they cannot bring cannabis back from Colorado.

“I think you’re putting a bunch of liability on these retail establishments… I think it’s going to be a big nightmare for these retail establishments,” he said.

Barbara Brohl, executive director of the Department of Revenue and co-chair of the Amendment 64 Implementation Task Force, explained the decision to open the industry to tourists.

“This was not an easy issue to address, but in the end, we were advised that the amendment itself does not allow us to restrict from non-Colorado residents,” she explained.

The committee is expected to take up the tourism question again at its next meeting, which is scheduled for March 22.

Pabon said that because there are still many recommendations to go through, the committee would likely need to meet multiple times, perhaps in the early morning before the legislature convenes for the day. A meeting could be scheduled for before March 22.

Both the House and Senate have also introduced respective resolutions creating new five-member committees of reference to consider the legislation that comes forward, once the joint committee finishes its business.

Not such a high time ahead for lawmakers

The work ahead for lawmakers will be both grueling and monumental, as Colorado could become a national model for adult-use marijuana legalization. Only one other state, Washington, has legalized cannabis, so Colorado is a sort of pioneer.

Legislators will come across opposition to legalization, despite the will of the majority of voters. At the hearing on Friday, Doug Robinson, with Smart Colorado — a citizens group formed to lobby lawmakers as they pass pot rules — said his organization remains concerned that legalization will damage the state.

“We have organized for one reason, and that is to keep Colorado the best state in the nation in which to live and to work…” he told lawmakers. “We are deeply concerned that the way Amendment 64 is implemented could threaten us.”

Robinson said his group has hired longtime Capitol lobbyist Sandra Hagen Solin and former Senate Minority Leader Mike Feeley, D-Lakewood, to represent them as lawmakers craft the laws.

Legislators have a bit of a head start, in that medical marijuana has been legal since 2000, including retail sale. The first recommendation from the task force is to use a so-called “vertical integration” model, meaning that much of current medical marijuana code will be adopted, including a recommendation that the supply chain is under common ownership, and that 70 percent of marijuana grown comes from such ownership.

The task force has recommended that for at least one year, applications for retail licenses under Amendment 64 should be limited to current medical marijuana licensees. As is the case with almost all of the proposals, local governments would be allowed to decide whether to authorize such pot shops.

Christian Sederberg, an attorney who worked on the Amendment 64 campaign and sat on the task force, said he believes it makes sense to begin with a vertical integration model.

“Having a smooth transition is crucial if we’re going to properly regulate this and allow the Department of Revenue and local law enforcement time to develop these processes and also develop the regulations. So, having a sort of very simple transition from the medical marijuana business model for those businesses that do want to participate makes sense,” explained Sederberg. “But people have to keep in mind that it’s a short-term thing.”

Ean Seeb, co-owner of Denver Relief — one of Colorado’s oldest medical marijuana centers — said he is excited about the new opportunity, but pointed out that vertical integration was not something that the medical cannabis industry lobbied for.

“We were not opposed to not having vertical integration in place. It’s certainly going to serve to help people who are in the business now… But if vertical integration didn’t pass, we would have no issue with it,” he said.

Seeb — who attended many of the task force meetings and also co-owns marijuana consulting firm Denver Relief Consulting — said he and his business partners are beginning to go through the recommendations to determine how to move forward. But he is not concerned that medical cannabis patients will be forgotten in the transition.

“I don’t think it will be difficult to manage,” Seeb attested. “We’ve done a pretty good job of creating the environment in which we operate now, and we had to do that from scratch. So, I don’t see any reason why it would cause an undue stress on us to operate in a different capacity.”

Tax question could be big fight

The big question facing lawmakers will be how to tax the new industry. All tax questions are required to go to a vote of the people under the Taxpayer’s Bill of Rights, or TABOR. Voters will likely face two questions, but it could come as one referred measure from the legislature.

First, Colorado voters would be asked to approve a new marijuana sales tax, with a rate to be determined by the legislature. Observers have said that tax could be as high as 25 percent.

Because the market is new, analysts are having a difficult time determining how much revenue the tax could raise. And because the market could be open to tourists as well, the math becomes even more difficult to determine. Medical marijuana is on track to generate $10 million in tax revenue this year, according to Sederberg.

Voters would also be asked to approve a 15 percent excise tax. Under Amendment 64, the first $40 million raised would annually go to school capital construction.

Sederberg has problems with the undetermined sales tax, especially if lawmakers are considering a number as high as 25 percent. He said a high tax could defeat the purpose of legalization, which was in part to erase the black market.

“Any sales tax that is too excessive is absolutely going to empower the underground market…” he said. “Every dollar that the price increases is a dollar that the underground market doesn’t pay.”

Seeb said current medical cannabis patients would be encouraged to maintain their registration in order to avoid costly taxes, though they may still be subject to an increased sales tax.

“Those who can qualify for medical are going to be much better off if they stay medical… They’ll end up saving a lot of money,” he opined. “So, the backlash should be simply against excise taxes, and they should be upset they’re going to have to pay taxes on something that they haven’t had to pay taxes on as a medical patient for so long.”

Safety concerns

The task force also spent a considerable amount of time looking at safety issues, primarily keeping marijuana away from children and protecting consumers.

Only adults 21 and over are allowed to use the drug legally. Adults are currently allowed to grow up to six plants and possess up to one ounce of marijuana.

The initiative also legalized the cultivation, processing and sale of industrial hemp, but the legislature has until July 2014 to enact those rules and regulations.

Health and safety recommendations include:

• Allowing employers to create policies around drug use;

• Enacting a separate criminal statute for driving under the influence of marijuana, which is currently making its way through the legislature as House Bill 1114;

• Prohibiting open, unsealed marijuana containers in motor vehicles;

• Tracking, measuring and destroying marijuana that cannot be legally sold;

• Establishing consequences for child care facilities that have employees using, or growing marijuana on site;

• Amending the statewide indoor smoking ban to include marijuana;

• Secured dispensing systems;

• Rules surrounding signage and advertising;

• Packaging and labeling standards, including potency;

• Rules around edibles to prevent over-consumption;

• Prohibiting marijuana that contains nicotine or alcohol; and

• Requiring education and research.

Federal government could sue

Despite the exhaustive work of the state, the federal government could still decide to sue Colorado to block implementation of any rules and regulations. U.S. Attorney General Eric Holder has only said that the federal government is weighing its options.

The task force has recommended that lawmakers consider lawful alternatives to assist marijuana businesses to access the banking system, including credit unions and federal institutions. Many federally-backed banks have been hesitant to do business with cannabis businesses because of potential federal repercussions.

Finlaw is hopeful that the state will sidestep a federal lawsuit if lawmakers enact carefully crafted legislation.

“The federal government needs to know that we are endorsing a very rigid, a very strict regulatory framework that has in the recommendations, both through fees and taxes, the resources to be able to enforce those regulations…” he said.

“We have suggestions in place… to make sure that marijuana grown and sold here in Colorado does not get into interstate commerce,” Finlaw continued.

“And… we are going to be very, very careful to make sure, and put consumer rules and other laws in place, to make sure that young people do not have access to marijuana,” he concluded.

Hickenlooper, who remains opposed to legalization, still praised the work of the task force.

“The commendable work by the task force sets the state for sensible regulation and enforcement in Colorado…” the governor said in a statement. “The entire group carefully and thoughtfully worked through dozens of issues and ideas. We look forward to now working with the General Assembly to follow through on the task force’s recommendations.”