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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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My Report from Colorado on Marijuana Legalization – Number 2

 

Marijuana Edibles - Marisol's House Produced Grape Flavored Hard Candy "Gems"

Marijuana Edibles – Marisol’s House Produced Grape Flavored Hard Candy “Gems”

What Is Known In the Trade as "Smoking Paraphernalia"

What Is Known In the Trade as “Smoking Paraphernalia”

"64" Refers to Amendment 64, Which Legalized Recreational Marijuana and Marks the Doors of Retail Outlets

“64” Refers to Amendment 64, Which Legalized Recreational Marijuana and Marks the Doors of Retail Outlets

My Report from Colorado on Marijuana Legalization – Number 2

by Larry Janezich

Recent visits to state recreational marijuana stores in Pueblo, Colorado, reveal that they vary widely in professionalism and business plans.

The largest, friendliest, and most transparent was Marisol Therapeutics.  A talk with Michael Tapia, Bud Manager and Kitchen Manager, showed much had changed since a previous visit (See:  http://bit.ly/1bWz87p) in January, when recreational marijuana supplies were limited.  Tapia said that the state has licensed more growers and producers of edibles and supplies of smokeables and edibles were currently plentiful.  The customer base continues to be older and well off –  the dozen or so customers encountered at noon time last Thursday appeared to range in age from 30 to 60.

Marisol’s sales are comprised of about 60% smokeables (marijuana in dozens of strains and hash), and 40% edibles (hard candies, chocolate bars, sodas, and cookies).  Prices have remained stable since January 1 – Tapia said that Marisol wants to maintain a predictable price so customers will know what to expect while the store builds a customer base.  Current prices are $56.35 per 1/8th ounce (about 7 or 8 joints) and $468 for an ounce – although almost no one buys an ounce.

Asked about effective dosage on edibles, Tapia says Marisol follows the state’s “Best Practices” regulations.  The recommended starting dose for recreational use is 10 milligrams of THC (the active ingredient in marijuana) – the same as the starting dose for medical marijuana, with 100 milligrams the maximum dose for the latter.  Marisol carries nothing in its recreational product line of edibles containing more than 100 milligrams of THC per package.

For example, the chocolate caramel bars and the pretzel peanut butter bars contain 62.5 milligrams in four squares (recommended starting dose is ½ of one square) which sells for $15.

The sodas, with 30 milligrams sell for $20.  The chocolate bars and the hard candies produced by Edipure are the store’s bestselling edibles.  The state requires that edible products leaving the store must be in a child proof bag, which the store charges $2.00 for.  Customers can reuse the bag for future purchases.

Because of lack of regulation and oversight, quality control is currently an industry problem.  The Denver Post recently had a series of edibles tested.  The results for some products showed a wide disparity between the amount of THC in a product as stated on the package and the amount actually contained in the product – usually, considerably less.  Edipure candies had the most consistently reliable product.  Marisol produces its own line of edibles and has its products tested by Phylatech Metrics and Solutions (no website) to monitor product quality.  Regulations require that all products be tested and labelled for THC content by October 1.

Banking and credit cards continue to hamper the industry.  Some marijuana retailers are reported to be taking credit cards using second and third parties, but despite federal government approval allowing banks to engage in business with marijuana sellers, banks are so far reluctant to do so.  Colorado has recently sanctioned those in the legal profession to accept marijuana retailers as clients.

State budget officials expect sales of recreational marijuana to be volatile for some months as additional stores open, supplies increase, prices drop, and the market shakes out.  In January, only two stores were open in Pueblo County – in February, there were five.  Sales of recreational marijuana in the County dropped from $931,877 in January to $820,000 in February.  County sales tax receipts from the 3.5% sales tax for February were 28,724 compared to 32,643 in January.  That tally does not include a 1% county sales tax on all items sold in the county, or the county’s share of the state’s marijuana-specific 10% sales tax.  Additional taxes include a 2.9% state sales tax and a 15 % excise taxes paid on the wholesale price when marijuana is transferred between grower and seller.  $40 million from the excise tax are designated by law for school construction.

Statewide, in January, sales from 59 recreational marijuana stores amounted to about $14 million and the state collected some $2 million in taxes.  The figures fell below what will be necessary to hit legislative and budget analysts’ predictions – which projected $190 million in sales for the first six months of 2014.  At the current pace, sales will amount to $84 million in that period which would mean some $12 million in revenue.  A broader customer base as marijuana becomes more available and increased sales during the tourist season could boost those numbers.

By the end of February, 108 additional stores had received state approval to sell recreational marijuana, though many are still in the process of receiving county and or city approval to open.  Pueblo has a moratorium on sales within city limits until January 1, 2015 – if then.  The city council is currently considering whether to allow recreational marijuana to be grown inside the city limits.

 

 

 

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My Report from Colorado on Marijuana Legalization

Marisol Gardens, Pueblo Colorado, recreational marijuana outlet

Marisol Gardens recreational marijuana outlet, administrative office.  Pueblo County, Colorado.

The Greenerside in Pueblo County, Colorado, opens its recreational operation this week

The Greenerside in Pueblo County, Colorado, opens its recreational operation this week

My Report from Colorado on Marijuana Legalization

by Larry Janezich

A Washington Post poll shows that DC residents support legalization of the sale of marijuana for personal use, 2 – 1.

Pueblo, Colorado, sits on the southern end of the chain of major cities running from north to south along the base of the Front Range – the eastern most range of Colorado’s Rocky Mountains.  It has had a difficult time transitioning out of its historic role of the industrial/agricultural hub of southern Colorado and achieving the burgeoning populations and economic success of cites to the north like Colorado Springs, Denver, Boulder and Fort Collins.   Still, as one recent visitor observed, “There’s an edginess here that you don’t find in cities to the north – it’s almost palpable as you drive down Main Street or walk down Union Avenue.  Artists should find a home here.”

It’s no wonder that the Pueblo City Council has welcomed the decriminalization and legalization of marijuana as a means of increasing revenues – which, under the terms of legalization – will benefit local schools.  Beyond that, the City Council is looking forward to the economic benefits they expect a legal marijuana industry to provide.  Consequently, Pueblo County is arguably the friendliest county in Colorado to the newly legalized marijuana industry.

I visited two marijuana providers last week on a trip to Pueblo (you must show ID proving you are 21 to enter the premises).  Currently, only the county’s ten licensed medical marijuana dispensaries are eligible for retail licenses, and only two of those are currently licensed to sell recreational marijuana.  Several additional medical dispensaries are expected to open their doors to the retail trade this week.

Chris Jones, Compliancy Officer for one of the retailers already in operation, said that the first month sales had exceeded their expectations.  The store was currently out of smokeables until later in the day but did have a supply of edibles, including lozenges and chocolate chip cookies.

Jones explained that the shortage was owing to production restrictions which prevented growers from gearing up to meet anticipated demand before January 1.  Production was limited by the number of medical marijuana patients registered with the dispensary prior to that date.  Colorado law prohibits retailers purchasing cannabis products from other growers, and it takes 120 days for a plant to be productive.  This will hold until October when new sellers can enter the market – then retailers will be permitted to purchase from wholesale in-state growers.

This particular venue operated in a large, well-designed open space, with high ceilings, lots of light, glass cases, and a knowledgeable staff.  Purchasing cannabis is as easy as buying alcohol.  After entering the premises, IDs are checked again when purchases are made at the cash register.  No personal data is collected except for imagery recorded by the legally required video cameras monitoring transactions.  Some retailers are reportedly taking major credit cards.

Jones spoke as to how tightly cannabis products are regulated and tracked electronically from seed to retail shop, allowing state officials to determine a shop’s inventory from outside the store.  Jones said that his store sells 1/8 of an ounce for $42.50 – plus taxes of $13.50 – totaling $51.40.  Taxes include state and county sales tax plus 25% state tax related specifically cannabis.  Prices vary statewide – a shop near Mile High Stadium in Denver was reportedly asking $60.00 1/8th ounce last week.  One eighth ounce (3.5 grams) will yield about seven joints.

The legal limit on purchases for Colorado residents is one ounce per purchase (current price – $400); for out of state visitors, the limit is 1/8th ounce per purchase.  There is no limit on the number of purchases an individual can make, but, under state law, it is illegal to possess more than one ounce.  In the same vein, the law permits users to grow up to six plants per individual “in a locked, enclosed space,” but that’s not easy, requiring an investment of up to $500 to create ideal growing conditions.  Personal sale of purchased or home-grown marijuana is prohibited.

One of the concerns regarding legalization was that the almost 32% total tax on cannabis sales would push the price much higher than the black market price which has been $25 – $30 an eighth ounce.  One observer, who is familiar with the issue, said that those concerns fail to take into account the price inflation resulting from the black market, noting that legalization should bring downward pressure on the price levels, allowing officials and users to find out what the true value of cannabis is.

Jones said that the retail sale of cannabis had resulted in price increases on the black market, attributing that counterintuitive claim to an effort on behalf of black market dealers to try to make up for income lost to the legal market.  It could also be that the legal sale of cannabis has established a new price level for the black market and indicate that prices on the black market will follow the legal price.

In the wake of legalization, another retailer predicted that retail prices will be cut in half and that there would be a glut on the market by the summer of 2015.  He added that he expects the legal retail price to drop to $25 an eighth ounce plus tax – competitive with (or less than) the black market price, since legal production costs will be much less than the production price for small illegal local producers.  This raises the question of what incentive will there be to sell on the black market if cannabis is widely available at a lower price.

According to one retailer, his customer base the past month has been “older and well off” – many from out of state, including New Mexico, Montana, Arizona, Kansas – even as far away as Massachusetts, New Jersey, and Chicago.  He sees economic benefits for a county or state becoming an “accepting haven” for users of cannabis.

Colorado law prohibits the public consumption of cannabis, but localities are permitted to define “public.”  Pueblo requires users to be inside their home – use of marijuana in yards or on porches is prohibited.  Most hotels and motels prohibit smoking in their rooms – although one international hotel chain with a location in Pueblo permits guests to smoke marijuana in the nine smoking rooms of the 63 rooms in the hotel.

Regulations are in place but enforcement seems to be feeling its way.  In Denver, police are reportedly not going out of their way to enforce the ban on public smoking unless they get a complaint or unless they encounter an “in your face” user, in which case they can issue a citation which is handled in municipal court, like a traffic ticket.  And, in some localities, those opposed to legalization on moral or professional grounds, are coming up against the political and business interests who see hundreds of millions in increased tax revenue, income from tourism, and an influx of new residents.

It will take many months – if not years – for the effects of legalization to be known.  As for now – after one month of legalization – in Pueblo and other parts of Colorado, it’s a non-issue.

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