Tag Archives: Stores

This week
the joint (heh heh) legislative committee working on implementation
of Amendment 64, Colorado’s marijuana legalization initiative,
struck a blow against pot
protectionism by
rejecting a requirement that retailers grow at least 70 percent
of what they sell. That rule, supposedly aimed at preventing
diversion of marijuana to illegal sales, currently applies to
medical marijuana suppliers, some of which lobbied to keep it. The
Amendment 64 Implementation Task Force, appointed by Gov. John
Hickenlooper to advise the legislature on regulation of the newly
legal recreational market,
recommended retaining the 70 percent rule for at least three
years, at which point the legislature could revisit the issue. The
task force also recommended protecting current medical providers
from new competitors for the first year. But on Monday the joint
committee—which is headed by state Rep. Dan Pabon (D-Denver), who
also chaired the task force—rejected that recommendation, saying
pot stores should be allowed to buy as much of their inventory from
growers or wholesalers as they choose. Under the committee’s
proposal, retailers still could grow their marijuana, but cannabis
entrepreneurs could choose to specialize in growing, wholesaling,
or retailing. The committee also voted to shrink the “grace period”
during which current operators would have a lock on the market from
the year recommended by the task force to 90 days. Assuming the
Colorado General Assembly goes along with the committee’s
recommendation, this is good news for consumers, new competitors,
and the current marijuana suppliers who support a more flexible
approach.
;Mike Elliott, president of the Denver-based Medical
Marijuana Industry Group,
argues that the 70 percent rule “makes sure that if you’re
growing it, you have a legal way of selling it.” Yet there is no
such requirement in other industries where diversion is a concern.
Pharmacies do not have to make the drugs they sell, and liquor
stores do not have to distill the whiskey they stock. Jessica
LeRoux, proprietor of Twirling Hippy
Confections and a vocal opponent of the 70 percent rule, says
it would benefit large marijuana sellers at the expense of their
smaller competitors. In a letter to legislators, LeRoux warned that
mandating vertical integration would mean that “only the most
well-funded current medical entities from the big city will be able
to expand into new locations.” In an
interview with Denver ;Westword, ;Warren
Edson, an attorney who represents cannabis businesses, elaborates
on the difficulties created by the approach that Elliott favors:

The skills needed to be a retailer aren’t necessarily the skills
needed to be a grower—but they pretty much force you to have the
same skills or find somebody to work with who has the skills you
don’t. That works sometimes, but it doesn’t always.
Medical marijuana is one of the few industries, if not the only
industry, where retailers are forced to own the whole line of
production. It’s a huge pain in the ass to run a business like
that—and to force that model into retail is ludicrous, particularly
given that Colorado voted to regulate marijuana like alcohol, and
alcohol is just the opposite.

Rather than requiring vertical integration in the alcohol
industry, states (including Colorado) generally prohibit
it, a policy aimed at fostering competition by preventing
manufacturers from controlling retailers (as with the
brewer-controlled taverns, a.k.a. “tied houses,” that existed prior
to Prohibition). The approach supported by the joint committee is
an improvement on both of those systems, letting the market
determine which combinations of functions make sense.
In a less encourging development, the joint committee is
recommending marijuana taxes a lot
heavier than the ones imposed on alcoholic beverages (even
taking federal taxes into account). In addition to the 15 percent
excise tax authorized by Amendmen 64, the committee is calling for
a special sales tax, as recommended by the task force, also at a
rate of 15 percent. The ABC affiliate in Denver
says that, combined with existing state and local sales taxes
(which total 8 percent in Denver), these levies would raise the
retail cost of marijuana by roughly 40 percent. But the impact
would actually be more dramatic than that, since the effect of the
excise tax depends on the wholesale markup, and the sales tax will
be calculated based on a retail price that includes the wholesale
markup, the excise tax, and the retail markup.
Part of the rationale for the special sales tax was that the
wholesale price would be hard to calculate and prone to
manipulation if retailers were growing their own marijuana. But if
the legislature agrees that the 70 percent rule makes no sense,
that justification carries less weight.
The General Assemby has until May 8, the last day of the current
session, to enact legislation setting the ground rules for
recreational pot stores, which are supposed to start opening next
year. Any taxes would have to be approved by voters this
fall. ;
[Thanks to CK for the tip.] … Read More