Committee rehashes pot reg recommendations

Three bills likely for regulating recreational marijuana
The Colorado Statesman

A legislative committee recommending legislation to implement marijuana legalization in Colorado finished its tedious work crafting a regulatory model for the budding industry on Monday, suggesting three bills that would establish taxes, as well as rules and regulations.

The three bills that the legislature will likely see breaks down to:

• A referred tax question for voters, including up to a 15 percent special sales tax and up to a separate 15 percent excise tax for school capital construction projects, as well as the usual 2.9 percent statewide sales tax;

• Rules and regulations with majority consensus; and

• Rules and regulations with unanimous consensus.

The 10-member bipartisan “joint” committee of members from both the House and Senate was tasked with navigating a maze of recommendations set forth by the governor’s diverse Amendment 64 Implementation Task Force. The task force suggested 58 policy recommendations, which the legislative committee then weighed for draft legislation.

With Colorado being only one of two states in the nation to legalize recreational marijuana — joining Washington this past November — lawmakers have been encouraged to establish a framework that establishes the state as a national model and leader.

The legislature now has only a little more than three weeks to pass the guidelines for the Department of Revenue to enforce. If lawmakers are unable to pass the three bills in time, Gov. John Hickenlooper could call a special session, which Capitol insiders say is unlikely. Even if the legislature does not pass rules and regulations, the Department of Revenue could craft its own regulatory framework, which it is required to do by July under Amendment 64.

Legislative leaders are creating committees of reference in both the House and Senate to specifically address the three marijuana bills, which could help to speed the process along and bring the bills to the floor with enough time to pass the measures.

At least 50 of the policy suggestions received consensus votes by the legislative committee, and many passed unanimously without contention. But the committee on Monday found itself addressing a curveball by Rep. Dan Pabon, D-Denver, chairman of the committee, when he suggested that the legislature reject a so-called “vertical integration” model.

Vertical integration would take the current medical marijuana code and apply that to full legalization. Under vertical integration, the supply chain is under common ownership, and 70 percent of marijuana grown must come from such ownership.

The task force recommended that for at least one year, applications for retail licenses should be limited to current medical marijuana licensees.

But Pabon suggested that such a model flies in the face of free market values. He proposed allowing a disconnect between the supply chain and retail sales, which means that growers would be allowed to operate independently. He also proposed allowing non-medical applicants to apply for licenses three months after medical marijuana licensees are allowed to apply. The committee, on a 7-3 vote, sent the amended recommendation on for draft legislation.

If the legislature adopts the proposal, medical marijuana licensees would be allowed to apply for recreational licenses on Oct. 1, and non-medical applicants would be allowed to apply on Jan. 1, 2014.

“As the free market proponents say, ‘This is the United States of America, and we should have a free market approach to this industry,’” attested Pabon. “Vertical integration does not recognize that.”

But Sen. Cheri Jahn, D-Wheat Ridge, was taken aback by Pabon’s proposal. She sat on the task force with Pabon, and pointed out that the diverse group of stakeholders had widely supported a vertical integration model. Jahn also could not understand why Pabon would offer such a dramatic amendment at the very last committee meeting, without discussing it with fellow members.

“This was just given to us, we’ve had no chance to talk to anyone,” she said. “Very clearly the model of just opening it up was overwhelmingly defeated.”

Rep. Jonathan Singer, D-Longmont, was also concerned by the proposal, though he ultimately backed it: “I think that we need to look at a starting point. At this point we’ve gone through a number of iterations… We’re all frankly concerned about how this is going to look going forward,” he said.

In addition to Jahn, Sens. Randy Baumgardner, R-Cowdrey, and Gail Schwartz, D-Snowmass Village, rejected Pabon’s idea.

The medical marijuana industry has raised concerns, worried about out-of-state interests pumping big money into the new recreational scene. They worry about implications with the federal government and violating interstate commerce laws. Marijuana remains illegal on the federal level, so it is unknown how the government will react to Colorado’s pioneering industry.

“The diverse membership of the task force thoroughly vetted the regulatory structure, and found that the structure is sound, and because of tight lawmaking deadlines, the most stable and secure way forward would be to keep the regulatory program in its current form, at least in the short term,” said Michael Elliott, executive director of the Medical Marijuana Industry Group. “Our primary concern is creating a program that withstands federal scrutiny. We have a successful program in place, so we will continue to raise concerns about any unnecessary changes in the regulatory model.”

Amendment 64 proponents are a bit less concerned. Christian Sederberg, co-author of Amendment 64, said he remains hopeful that lawmakers are on the right track.

“I am optimistic, certainly. The legislative framework is a crucial piece of it. The next step, which is equally important, is the actual regulatory framework, which comes out of the Department of Revenue,” he said.

“Tough decisions were made, compromises were made, and at the end of the day, we’re confident that we will have a strong and robust regulatory framework,” Sederberg continued.

Concerns over taxes and enforcement division

The other major concerns surround how to tax the industry and whether the Department of Revenue’s enforcement division is capable of handling the challenge.

The tax question is still very much up in the air. Voters will need to approve the 15 percent sales tax and 15 percent excise tax. Without voter approval, the enforcement division could be left without the resources to do its job.

It’s also unclear whether the two separate 15 percent taxes will actually face voters this November. The proposals call for “up to” a 15 percent tax in each instance. It takes two-thirds of each chamber to back a proposed ballot initiative.

At its meeting on April 4, the committee heard from Barbara Brohl, executive director of the Department of Revenue, who expressed fears over not having enough money to operate an enforcement division. She said the division’s current $2.5 million budget is not sufficient. She believes $5.7 million would be ideal. For that reason, she has recommended that the legislature consider general fund dollars as well.

“There needs to be some predictability of funding until it becomes stable,” Brohl told lawmakers.

Also at issue is whether the Department of Revenue’s enforcement division is capable of handling the challenge. A brutal audit last month revealed that the Medical Marijuana Enforcement Division misspent taxpayer dollars and had issues with simple regulation, such as keeping people prohibited from operating a medical marijuana center from receiving a license.

Committee members were so appalled by the audit that they pulled back on an original recommendation to transition the MMED to a single marijuana enforcement division. But ultimately the committee backed an amended recommendation for a single division, but would require it to report to finance committees on an annual basis.

Brohl assured lawmakers that her department has taken steps to correct some of the criticism.
“Work is already well underway. We did not wait for the state audit to act,” she addressed the committee, explaining that changes in management and how the department collects licensing fees helped to ensure progress.

Hemp bill receives unanimous approval

Amendment 64 also legalized commercial hemp production. A separate measure already moving through the legislature — Senate Bill 241 — received unanimous approval from the Senate Agriculture, Natural Resources and Energy Committee on Wednesday. The legislation now heads to appropriations.

The bipartisan SB 241, sponsored by Schwartz and Sen. Larry Crowder, R-Alamosa, would direct the Agriculture Department to license hemp growers starting next year.

The unanimous vote is symbolic of just how far the marijuana conversation has come over the last few years in Colorado. For many years, lawmakers were unwilling to entertain the idea, fearful of federal repercussions. Finished hemp is legal in the United States, but growing it is not. As a result, farmers would not be allowed to insure it.

But on Wednesday, committee members appeared excited about the idea of hemp production, which can be used for a myriad of industrial uses, including rope, clothing, soap, food and paper, to name a few.

Sen. Ted Harvey, R-Highlands Ranch, called the measure a “neat bill” to be a part of.

“It’s a very promising opportunity for Colorado,” he said. “I do have serious concerns about what we will be able to do in Colorado without the federal government loosening some of their constraints on the industry, which I don’t understand why they’re there in the first place.”

Over the course of the debate, lawmakers learned that hemp has almost no psychoactive properties, which helped them to support widespread growth. They also learned of the incredible seeding abilities of the plant, which allows for farmers to mass-produce at low cost.

Still, Sen. Greg Brophy, R-Wray, a farmer, expressed his concerns, pointing out that farmers might even have trouble depositing money made from the crop because of federal banking laws.

“I think there is potential with this crop, but the hurdles are huge,” he said.

Peter@coloradostatesman.com