Turning point for legal marijuana in Colorado: Big changes in the works as state plays catchup

Daniel Brenner, Special to the Denver Post

Machine operator Adam Jimenez works to package product Thursday, March 28, 2019, at Terrapin Care Station in Aurora.

Under a new governor, home delivery and looser investment rules are on the table

By Jon Murray

Colorado’s status as the frontier for legal marijuana is fading fast as larger states get in the game, spurring lawmakers this spring to consider big changes that would reverberate for years to come.

Substantial proposals are predicted to unleash an influx of money from larger investors into the state’s $1.5 billion-a-year industry while setting the stage for home marijuana delivery and limited public consumption of marijuana — the latter measure aimed at resolving an issue that vexes tourists and renters alike.

The legislature also faces a May deadline to revamp its expiring recreational and medical marijuana codes.

Daniel Brenner, Special to the Denver Post

Golden Goat marijuana, a sativa, is pictured Thursday, March 28, 2019, at MMJ American Dispensary in Denver.

Several legalizing states, including California, have tried out rules allowing for large-scale investment, pot delivery services and social consumption venues in a variety of ways. Supporters argue Colorado’s proposals would follow the spirit of Amendment 64, the voter-passed amendment that legalized recreational marijuana in 2012.

But should the state, after joining fellow trailblazer Washington in taking a cautious route, follow the others’ lead?

“We’re definitely at a turning point here,” said Sam Kamin, a professor of marijuana law and policy at the University of Denver, and lawmakers on both sides of the aisle echo that sentiment — though some legislators and activists view the changes as risky.

“The competition has gotten intense,” Kamin said. “Colorado still has some advantages in terms of experience and know-how. But that expertise butts up against the limited opportunities for investment. And if Colorado is going to be more than a launching pad for brands and methods — if it’s going to continue to attract investment — then something needs to give in terms of how the industry is currently structured.”

Longtime players in Colorado’s industry are viewing the horizon eagerly, including Dixie Brands, a Denver-based company that started as Dixie Elixers.

Its edibles products now are produced and sold in four other states, and it has sought new investors since its listing last November on the Canadian Securities Exchange — which operates in a country that legalized recreational marijuana nationally, unlike the United States. But while Dixie can plow that money into its affiliates in California and other states, it can’t do so in Colorado.

Tighter ownership and investment restrictions than in most other legalizing states require strict separation from Dixie’s local production licensees.

“It really restricts the opportunities for business owners here to expand the businesses,” said Chuck Smith, Dixie Brands’ president and CEO, and also the board president of cannabis industry group Colorado Leads.

He said a bill aimed at loosening those restrictions, on par with the other states, “really is to say we want to be treated no differently than any other industry in the state of Colorado.”

A year ago, Colorado was on the cusp of major changes. Similar bills loosening business restrictions and allowing marijuana use in tasting rooms won legislative approval. Then, they were scuttled by the veto pen of former Gov. John Hickenlooper.

But his successor, fellow Democrat Jared Polis, who courted the industry during his campaign last fall, has signaled that he’s more open to such measures.

Daniel Brenner, Special to the Denver Post

Pure Love marijuana, a sativa, is pictured Thursday, March 28, 2019, at MMJ American Dispensary in Denver.

Now both bills are back in expanded form in the Democrat-controlled legislature, along with the delivery bill, another long-discussed measure. All of those are still working their way through the process with bipartisan sponsorship. Yet another bill vetoed by Hickenlooper last year — allowing medical marijuana access for people with autism spectrum disorder — also has been revived; House Bill 1028 awaits Polis’ signature after passing the state House and Senate.

State Sen. Julie Gonzales, a Denver Democrat who’s co-sponsoring several marijuana-related bills, said the session offered “an opportunity for the General Assembly to really take stock of the path we’ve gone down as the first state in the country to implement laws and regulation around (recreational) marijuana policies.”

But a Republican colleague, Paul Lundeen of Monument, is wary of going too far just five years after Colorado’s first legal recreational marijuana sales began. “Everyone has settled in as if this is normal,” he said, “but this is still very much an experiment.”

Tasting rooms, deliveries and public ownership

Each proposed bill is complex, but they have bipartisan sponsorship and straightforward aims:

• Business ownership: House Bill 1090 would relax Colorado’s limited ownership and investment restrictions for licensed marijuana businesses by allowing publicly traded corporations and equity funds — including large investors based in Canada — to invest. The state currently allows up to 15 out-of-state owners and allows only private investment. The bill passed the House 54-11 on Friday and now heads to the Senate.
• Social consumption: House Bill 1230 would allow both tasting rooms that sell marijuana and “legal marijuana hospitality establishments” where patrons 21 and older can bring their own marijuana, similar to what’s allowed by a fledgling voter-approved program in Denver. The bill won 7-4 approval by the House’s business affairs committee Wednesday and is awaiting a hearing in the Finance Committee.
• Delivery services: House Bill 1234 would allow dispensaries and stores to deliver marijuana and cannabis products to customers at their homes and other places, starting with medical marijuana and expanding to recreational after the first year. Eventually, third-party services — similar to those that have taken root in California — could jump in. The bill is awaiting action by the House business affairs committee, with several amendments under consideration.

It’s likely that both the social consumption and delivery laws would require opt-in decisions from local governments or voters before those options would be available in a given city or county. That’s been the approach for recreational sales, too.

Separately, lawmakers this year are tasked with reviewing and renewing the overarching legal infrastructure that regulates the ins and outs of both the medical and recreational markets.

Lawmakers, state regulators and industry leaders hope to harmonize the voluminous rules that govern both sectors into a single marijuana code, which could ease the strain on licensees that often operate both types of businesses. The new regulations will ensure that testing, labeling and sales of marijuana continue for another nine years in Colorado.

Bills are now being drafted after a “sunset review” by state government last year recommended changes that include eliminating redundant testing, streamlining the licensing process and setting up new rules that would allow recreational marijuana shops to sell hemp-derived cannabidiol, or CBD, products for the first time.

Since the existing codes expire at year’s end, lawmakers face a deadline of May 3, the end of the session, to replace them.

“All this is going to shape the industry over the next two decades,” said Chris Woods, the CEO of Terrapin Care Station, a mid-size marijuana chain with about 250 employees in Colorado and Pennsylvania.

Daniel Brenner, Special to the Denver Post

Joint room production member Michael Reeves, center, helps prepare preroll “Terra Pins” Thursday, March 28, 2019, at Terrapin Care Station in Aurora.

Offering new options for consumers

For customers, the bills under consideration offer new options to buy and use marijuana, though concerns about public safety and other issues have prompted sponsors to fine-tune them.

In particular, advocates for the disabled, veterans and others who rely on medical marijuana say a delivery option could help people who have difficulty getting to a dispensary — as well as keep those in search of more marijuana off the roads. But the delivery idea has split the industry, with some worrying delivery by the big chains could bump out smaller shops.

Where marijuana can be consumed in Colorado is perhaps the longest-standing — and thorniest — question to come out of legalization, since Amendment 64 does not permit consumption “openly and publicly.” Lawmakers have tried and failed to define what “public” is during previous sessions.

“There are a lot of tourists who come to Colorado who want to partake, who see this as a fun and interesting thing to try,” Gonzales said. “Frankly, there isn’t a place for them to consume.”

She noted that it’s just as illegal to smoke weed in most hotel rooms as it is on a street corner or in a park, though unlicensed pot clubs have popped up.

The public consumption question has resulted in competing interpretations — including in Denver, where police last year raided marijuana tour buses because customers were smoking pot and consuming edibles on board.

“What I want to see come out of this is the clearest definition possible so that people can have equal rights as any other consumer,” said Mike Eymer, who runs Colorado Cannabis Tours, one of the targeted operators.

Daniel Brenner, Special to the Denver Post

Michael Reeves, left, smells marijuana flower Thursday, March 28, 2019, at Terrapin Care Station in Aurora.

The consumption bill, as drafted, could provide state sanction for such operations by allowing the new licensed consumption establishments to be mobile.

But the bill would not change the state’s prohibition on serving alcohol in places where marijuana consumption is allowed. That’s been a point of contention in Denver, where advocates say the city’s social-use program has been stymied by the state liquor policy as well as excessive regulation by local officials.

Henny Lasley, executive director of Smart Colorado, a group that presses for tighter regulations to keep marijuana out of the hands of children, opposes the social-consumption bill.

“Amendment 64 was clear that (marijuana) was for private use, not for open and public use,” she said, adding that allowing social use could help normalize marijuana for kids and lead to an increase in impaired driving.

New opportunity for businesses

For marijuana business owners and entrepreneurs, the proposed reform of business regulations would help address a longstanding issue: Without access to traditional banking, including loans, they have had limited options to attract investment for expansion.

A U.S. House committee on Thursday advanced a bill that would lift many banking restrictions, which are rooted in marijuana’s illegal federal status. But Colorado’s marijuana industry says the state restrictions hurt them, too, and they argue that the original concerns fueling the rules — about unaccountable investors and criminal influence — have proven unfounded.

Still, an open question remains: If more cash starts flowing, will it accelerate the consolidation that has played out in the last few years?

Daniel Brenner, Special to the Denver Post

Manager Gerard Whalum helps a customer Thursday, March 28, 2019, at MMJ American Dispensary in Denver.

Kristi Kelly, executive director of the Marijuana Industry Group, and Smith from Dixie Brands are among those who argue smaller businesses would benefit just as much from access to more investment options, potentially helping them grow.

And Dean Heizer, the LivWell Enlightened Health chain’s executive director and chief legal strategist, says the wider investment possibilities would allow small-time business owners who want to cash out to value their companies higher. In LivWell’s case, he said, relaxed ownership rules would make it easier to grant equity incentives to senior employees.

Regardless, an attorney who has advised marijuana companies on Canada-related transactions says the business bill has the potential for far-reaching impact.

“Many of the large public companies out of Canada that are doing business in the U.S. are California-based,” said Kenneth Sam, a partner in the Denver office of Dorsey & Whitney. “And you’re starting to see that (interest) go across the U.S. to states like Michigan.

“Everybody is chomping at the bit to get into Colorado.”