Even with marijuana rules mostly written, uncertainty still looms | PostIndependent.com

Even with marijuana rules mostly written, uncertainty still looms

On Tuesday, voters will determine the fate of a number of retail marijuana tax initiatives on the November election ballot. In addition to proposed sales and excise tax questions at the state level, the towns of Breckenridge, Frisco and Silverthorne have proposed their own 5 percent excise tax questions. If approved, revenues would fund police enforcement and mental health services. Above are marijuana plants at Medical Marijuana of the Rockies in Frisco. The dispensary is owned by Jerry Olson.
File photo | Summit Daily News

Leaf Aspen medical marijuana dispensary co-owner Jesse Miller is following state and local jurisdiction lawmakers closely this year. He, like every other marijuana business owner in the state, could easily miss an important detail if he stops paying attention even for a day.

“We have an attorney, but we don’t pay him to follow this,” Miller said. “I track it. I read all the rules when they come out to make sure we’re compliant.”

Miller has had plenty of reading material in 2013. Since voters approved Amendment 64 last year, legalizing recreational marijuana use in the state, lawmakers have been scrambling to get the proper rules in the books before new retail marijuana businesses are permitted to open in 2014.

But even with final rules adopted by the state’s Marijuana Enforcement Division that take effect Oct. 15, the need for yet another round of rulemaking arose when the State Licensing Authority identified four public safety issues — an interim production cap for retail marijuana cultivation, concentrate production safety, edible product consumer safety and mandatory testing, and random sampling — during the process.

“The whole idea of retail marijuana is new for the entire state. Everybody is going to be testing the waters and trying to interpret what the numerous regulations mean.”
Deborah Quinn
Aspen city deputy attorney

What it means is the state laws are still being written, making it hard for municipalities to write their own laws on the matter. Local governments across the state, including many mountain towns and counties, have chosen to put moratoriums on retail business applications until the industry’s challenges become more apparent.

Miller said that complicates things for medical business owners who want to make the switch to retail. Medical shops have to grow their plants mostly in industrial warehouses, which are often located tens of miles away from the actual dispensaries. Miller’s current medical grow operation is near Carbondale, and now he’s looking into getting a new grow facility in Rifle for recreational plants.

“For us as an entity, Aspen isn’t the local authority we have to deal with,” Miller said. “That’s where it gets tricky.”

State law is only allowing medical marijuana business owners the chance to apply for retail licenses for the first six months before opening it up to other applicants next June. But in Aspen, three new medical applicants popped up before the state’s Oct. 1 deadline when medical businesses had to be established in order to apply for retail.

The Aspen City Council is expected to vote Tuesday on whether the city should restrict the number of retail businesses to the same number of medical businesses established by Oct. 1, 2013.

Miller doesn’t like the mad rush for last-minute medical licenses, especially when he’s been in business for three years and has built up relationships and respect in town.

“The last thing we want after having been good, upstanding citizens in doing this, is for some yahoo to come running in here with his eyes set on XGames and is just selling crap and then disappears,” Miller said. “Then we all get a bad name.”

Miller also doesn’t see how those businesses will be able to supply their operations with enough marijuana. The state is giving the first retail shop owners a one-time opportunity to supply their retail inventories with up to half of their medical plants. Otherwise, there wouldn’t be enough time to grow new plants specifically for recreational use by the opening date of Jan. 1, 2014.

While that’s the law today, some business owners aren’t sure what will be the case when the retail stores can actually start opening. Todd Carstens, a co-owner at Greenwerks in Glenwood Springs, said the rules and regulations are constantly changing.

“Since we started, it’s been like trying to hit a moving target all the time,” Carstens said.

‘It’s been tough’

In Frisco, Medical Marijuana of the Rockies owner Jerry Olson said he has all the legal information he can deal with right now. He’s working on a retail application, too, and is running into everything from strict zoning laws to financing challenges.

“In the medical industry up here in the mountains, we’re just getting by,” Olson said. “There’s a bigger population down in the city.”

Because marijuana is still illegal under federal law, marijuana business owners in Colorado can’t walk into a federally insured bank to get a loan. Most business owners can’t do any personal banking, either, if their marijuana business is their primary source of income.

“You’ve got to get a loan from someone other than a bank,” Olson said. “There’s not a lot of money around these days.”

Olson is considering selling small amounts of stock in his business to get the cash flow needed for retail, but he hasn’t made any commitments yet.

Carstens and his ownership group had to raise capital before they opened their businesses (they have two more locations in Denver). It’s also been hard to accept credit cards.

“Once they find out what you do they cut you off and you have to find a new merchant services account,” he said. “It’s been tough.”

Miller said it can be nerveracking operating a cash business. He knows many dispensary owners who walk around with wads of cash in their pockets. Many use safes and safety deposit boxes, but the anxiety over where to keep their money never eases.

Olson wants to gobble up whatever space he can find where retail marijuana is legal. Because of the strict zoning laws in Frisco and other mountain communities, Olson doesn’t think there will be a lot of space leftover for the non-medical people when they try to crack into the business later next year.

“Guys like me will consume all the zonable space,” he said.

Whether space is available or not, medical owners know market forces will solve a lot of the problems. When Miller first opened Leaf Aspen, he counted roughly 45 dispensaries in the Roaring Fork valley. Right now, he can count 13.

Thankfully, some of the failed businesses are also some of the businesses that were running illegal operations. Some owners were getting their supplies from California, Miller said, and some were even selling pot to minors out the back door.

“We were all for removing these types of people from the industry,” Miller said.

With a new industry sprouting, however, Miller isn’t sure what it means for the future. He knows he and his co-owners will be following the law and paying their taxes, which could be astronomical in some jurisdictions.

The unknown

State voters will decide in November on whether Colorado can impose a 15 percent state excise tax on wholesale marijuana when it’s first sold and whether the state can impose a 10 percent state sales tax on retail marijuana in addition to the existing 2.9 percent sales tax. Combine that with local jurisdiction sales taxes, plus any new sales taxes those jurisdictions ask to impose on retail marijuana, and taxation could be as high as 50 percent in some towns.

In posh resort towns like Aspen, Miller doesn’t think the extra taxes will deter buyers with disposable incomes. He said an ounce in Colorado is already about half the price — about $100-$150 — of the price for the same quality product in New York City, but he expects that to change.

“Supply and demand issues will push the prices up,” Miller said. “I think it’ll end up balancing out. I think you’ll see medical go a little higher in price [than what it is today], and then retail will be higher than that, plus the taxes on top of it.”

The current tax proposal is ridiculous, though, he said.

“It’s a luxury tax and a sin tax all rolled into one,” he said. “Dial it back and put something out there we could get on board with.”

Carstens supports the taxes because prices are already relatively low, he said. He doesn’t think the taxes will end up being much of an issue.

He doesn’t really know what problems will arise, though, because nobody does. Aspen City Deputy Attorney Deborah Quinn said recreational marijuana is going to be a learning curve for everyone.

“The whole idea of retail marijuana is new for the entire state. Everybody is going to be testing the waters and trying to interpret what the numerous regulations mean,” she said.

Vail Town Attorney Matt Mire advised the town of Vail to define private clubs, another hazy area of the law. In some jurisdictions such as Denver, Mire said people aren’t waiting for the legal date for retail businesses to open.

“They’re trying to get in [to the business] under clubs,” Mire said. “So we defined private club.”

The town of Vail will revisit the issue before its moratorium expires in December, Mire said. In the meantime, Mire and attorneys across the state will be watching to see what voters and state lawmakers decide in the coming weeks and months as the legal marijuana industry in Colorado continues to evolve.

— Lauren Glendenning is the Editorial Projects Manager for Colorado Mountain News Media. She can be reached at lglendenning@cmnm.org or 970-777-3125.

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