My Report from Colorado on Marijuana Legalization – Number 3

A Mural the Width of a City Block on Main Street in Pueblo References the Devastation of the 1921 Flood, the Town's Former Importance as a Saddle Manufacturing Center, and Its Latino Heritage.

A Mural the Width of a City Block on Main Street in Pueblo References the Devastation of the 1921 Flood, the Town’s Former Importance as a Saddle Manufacturing Center, and Its Latino Heritage. (Click to Enlarge)

My Report from Colorado on Marijuana Legalization – Number 3

Criminal, Civil, and Tax Implications

by Larry Janezich

National marijuana legalization seems not a question of if, but a matter of when.  Colorado has launched an initiative on legalization of marijuana in the same tradition of many other progressive Western movements.  Other states and the federal government will likely follow in its footsteps.

To date, a total of 22 states and the District of Columbia allow broad use of medical marijuana. Nine other states have passed laws that allow medical marijuana for use by children with seizure disorders.  Nationally, 58% of Americans support legalization.

Decriminalization of marijuana in DC is likely to become effective July 17, 2014, barring any unforeseen Congressional recesses.   House Speaker Boehner has deferred to Rep. Issa (R-CA) House Oversight and Government Reform Chair, as to whether the House will raise any objection, and Issa seems unwilling to interfere with DC’s process.

The decriminalization measure, signed into law by Mayor Gray, was originally sponsored by Councilmember Wells, and replaces criminal penalties with a civil fine of $25 for possession of up to an ounce of marijuana. As it now stands, possession of any amount carries a penalty of six months in jail and a fine of $1,000.

It is important to realize that marijuana decriminalization is far different from legalization; criminal channels will still supply marijuana users in the District, and the only way to change that is to legalize the drug, a move now called for by advocates circulating a petition to get such a measure on the ballot.  DC’s Board of Election has sanctioned collection of signatures to put Initiative 71 “Legalization of Possession of Marijuana for Personal Use Act of 2014” on the ballot in the November.  Polls show 63% of the population support legalization, yet the necessary 23,000 signatures – which must be collected by July 7 –  have been slow in coming.  If organizers are successful, DC could be the next US political entity to legalize marijuana.

Capitol Hill Corner visited Pueblo County, Colorado last week and files this report as part of an on-going series.

As reported earlier, Pueblo has moved quickly to embrace legalization as a way to bring economic relief to a city that has not prospered as much as cities along the Front Range to the north.  The first two reports concerned the industry from the point of view of the retailer.  (See here:  http://bit.ly/OXCIcA)  This report concerns issues from the point of view of the civil and criminal justice system, as well as the taxing concerns.

Regarding criminal justice, Pueblo County District Attorney Jeff Chostner’s office chose not to comment owing to lack of statistical data.  But Pueblo County Sheriff Kirk Taylor was happy to discuss the problems that legalization had brought to his office on a day to day basis.

Two ways in which legalization has had a significant impact, Taylor said, are an “exponential” increase in phone traffic related to compliance with the new marijuana law, and his department also receives complaints of criminal activity reportedly related to marijuana use.  In addition, Taylor feels he should assign deputies to conduct compliance checks alongside Colorado’s Division of Marijuana Enforcement, and this has stressed his staffing requirements.

Asked about the recently touted decrease in crime in Denver County during the first four months of deregulations, Taylor noted that the drop in crime was related to the major crimes tracked in the Uniform Crime Report statistics.  Those crimes are as follows: homicide, sex assault, robbery, aggravated assault burglary, theft from motor vehicles and auto theft, arson and larceny. Taylor pointed out that the statistics did not cover other crimes such as drug related arrests, home invasion, or DUIs.

With respect to the black market, Taylor says that the price disparity between the regulated product black market product keeps the illegal market alive, as do increased access, affordability, and acceptance of the drug.  He says one of the effects has been reflected in the difficulty construction companies have in hiring workers who can pass drug tests.

Taylor sees an indirect link to legalization of marijuana and the use of heroin – though he admits that methamphetamine is Pueblo County’s more serious problem – and says that sellers of illegal weed use profits to push other illegal drugs.  In 2012, the Sheriff’s office conducted one of the state’s largest drug busts – a 7,000 plant marijuana grow near Rye, Colorado.  At the time, Taylor said he thought the operation was linked to a Mexican cartel.

According to Taylor, “Viewed through the prism of law enforcement, it would be easier for us and the State of Colorado if marijuana is legalized nationwide.  More people would have a stake in regulating it.  In neighboring states – Kansas, Wyoming, Utah, New Mexico – illicit drug busts have gone through the roof.”

Asked if he was advocating national legalization, Taylor said, “Absolutely not.  Personally I don’t believe in legalization.”  He went on to say that proponents’ claims that keeping it out of the hands of youths, elimination of the black market, and the drug being safer than alcohol have not been borne out in his experience.  He did say, however, that “one good by-product of legalization is the opening up of research exploring the benefits of marijuana,” which heretofore have been prevented by law.

Capitol Hill Corner also talked to Pueblo attorney Doug Kwitek, whose practice is largely civil law in Pueblo.  Kwitek offered his personal opinion on legalization.  “It’s one thing if smart, energetic people want to smoke marijuana – I tend to be a libertarian on that issue.  The bigger problem is the tendency of people who don’t have a lot of motivation to begin with to smoke marijuana and that tends to destroy any chance they have.”  Personal opinion aside, Kwitek listed a host of civil law issues plaguing the marijuana industry few of which have been resolved, including banking, buying real estate, leases, access to water for growing, zoning for selling, and income taxes for those in the industry.  Last week the Bureau of Reclamation announced that federal water cannot be used to grow state-sanctioned marijuana crops.  In Pueblo County, state and city water supplies have no such restriction.  At one point, he said, attorneys were told they couldn’t advise anybody involved in the marijuana industry because it would be a violation of the oath to uphold the laws of the US.  Recently, the Colorado Supreme Court ruled that entities have a right to access to legal advice regarding state law.

Kwitek seconded Taylor’s suggestion that the higher price of legal weed resulting from heavy taxes may be responsible for a continuing black market.  If this proves to be the case, regulators will be pressed to find a level of taxation which provides revenue while making the price attractive enough to customers so they will still be willing to pay the legal price.

The attorney cited the opinion of an associate – a local narcotics enforcement official – who says legalization was a huge mistake.  The associate said that he sees a connection between marijuana and meth – that because those who try meth might be inclined to try something stronger.

Kwitek says the “disparity between federal and state policy will continue to be problematic until rectified, and until then, retailers and medical marijuana providers will be operating in gray area…The federal policy is subject to change, but it would be a policy quagmire to begin prosecuting marijuana offenses where the public is overwhelmingly in favor on it.”  He suggested that legalization may be too far down the line to reverse.

Capitol Hill Corner also consulted Jerry Short, a Pueblo CPA, regarding the tax implications of legalization.  Short cited federal code which specifically states that individuals have to pay taxes on illegal activities under threat of being charged with a felony.  Because of bank unwillingness to deal with the industry, taxes have to be paid by purchasing money orders with cash or writing checks on legitimate accounts from other income.

Short says he thinks the federal government will move quickly to resolve the issue.  “The Fed is like everybody else – money talks.  They will do whatever is necessary to get it done.

Once everybody finds out the economic benefits, they’ll get on one horse and start riding.  Once government starts collecting revenue, the impact will be too great to reverse.”

Meanwhile, the Pueblo City Council is moving ahead to consider regulations governing the growing, product making and testing for the new industry.  The town’s current moratorium on retail within the city limits expires June 30 – the current seven marijuana retail operations are all outside city limits.  Marijuana industry representatives along the Front Range are looking at Pueblo’s lower cost real estate to locate aspects of the business and Pueblo is rolling out the welcome mat.

Recently, questions have arisen about how much revenue the state will realize after the first year, with the governor revising downward  initial projections which have come to be seen as too optimistic.  In Pueblo County, retail sales of marijuana fell off a bit last month after reaching a high in March – figures for total sales during the first four months are as follows:

April                $964,000 in total sales

March             $1.2 million

February          $800,000

January            $900,000

The summer tourist season may bring sales back up and even surpass previous levels.  Through March, Colorado has collected $12.6 million in taxes and licensing fees on sale of recreational and medical marijuana.

Still, as new concerns arise which perhaps fall under the category of unintended consequences, the state is finding it has to continue its scrutiny of its regulation process.  For example, the legislature moved swiftly to impose standards on the quantity of THC in edibles after an out of state student fell or jumped to his death from a balcony after accidently overdosing on edible marijuana.  Nine children have been hospitalized after consuming THC edibles this year as opposed to nine in all of 2013, despite requirements  that THC products to leave the store in child proof bags.  And fire departments have had to contend with home explosions that result from amateurs making their own hash oil in a risky process involving butane.

As local law enforcement officials scramble to stay abreast of legalization, it is likely that more  of the revenues generated by it will have to be redirected towards their regulation and enforcement efforts.  It will be many months before Colorado’s experiment in legalization can be fully assessed.  In the final analysis, legalization will not be judged by its consequences alone, but also in comparison to the many costs of prohibition.

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