Colorado Regulatory Landscape Shapes Budding Cannabis Industry

  Silverpeak Apothocary, Aspen, CO  Photographer :  Michael Brands

Silverpeak Apothocary, Aspen, CO Photographer: Michael Brands

In our last post, we examined some of the basic principles underlying the marijuana supply chain, from growing, to processing, to product design, distribution and retail sales. 

Regardless of which link in the cannabusiness supply chain one chooses to undertake, as the legal cannabis industry grows and matures, one fact has become abundantly clear: the regulatory framework that states choose to adopt will have a fundamental effect on how the industry in that state will develop.

States are legislative laboratories, where different systems are implemented, examined and (hopefully) improved upon.  As more and more states begin to experiment with different ways to implement legalization frameworks, we have begun to see how state regulations can influence and form supply chains.

For example, Colorado’s Amendment 64 tasks state regulators with preventing black market weed from entering the supply chain.  The amendment accounts for the likely eventuality that, simply because existing cannabis supply chains now have the option to operate legally and above board, not all of them will choose to do so, rather deciding to accept the risks of running afoul of state regulations and criminal laws in exchange for avoiding government taxes on their profits.

So, since we know that there will still be black-market cannabis available in legal markets, regulators had to think of a way to prevent ill-begotten cannabis from being used in legitimate cannabusiness.

U.S. Attorney General . . . will not hesitate to intervene if cannabusinesses cannot

· Keep marijuana away from kids;
· Ensure that criminal gangs are kept out of the equation;
· Ensure that Marijuana is not being trafficked to other states.

The Brief, Inefficient Life of the 70/30 Rule

 In 2010, Colorado attempted to address concerns that legal medical marijuana dispensaries would obtain their cannabis from black market sources by implementing the so-called “70/30 Rule.” This rule specified that dispensaries in Colorado had to grow at least seventy percent (70%) of the marijuana they sold. 

While there are potential efficiencies in managing all links in the cannabis supply chain under a single roof (such as, you don't have to worry that your supplier will go belly up and default on its contract), many smaller dispensaries found it difficult to maintain sufficient inventory when they were required by law to grow 70% of their product.

 12/27/13, employee L. Herzog trims away leaves from pot plants, harvesting the plant's buds to be packaged and sold at  Medicine Man  marijuana dispensary. | Photo: ASSOCIATED PRESS

12/27/13, employee L. Herzog trims away leaves from pot plants, harvesting the plant's buds to be packaged and sold at Medicine Man marijuana dispensary. | Photo: ASSOCIATED PRESS

With the advent of recreational marijuana markets, regulators initially subjected recreational dispensaries to the 70/30 rule as well.  However, this provision was eliminated in September of 2014, allowing dispensaries to operate without having to grow 70% of their inventory. 

This allows for greater specialization of the Colorado cannabis supply chain, as businesses can focus all of their efforts on a single aspect – salesmen no longer have to be part-time growers.

A High-Tech Solution

It’s important to note that regulators did not abandon the 70/30 Rule because they simply stopped worrying about infiltration of black market cannabis into the legal industry.  Rather, they realized that the 70/30 rule introduced artificial inefficiencies into the supply chain that were largely unworkable for smaller vendors.  If they could come up with alternative solutions that didn’t create such inefficiencies, then everyone involved would benefit.

Ultimately, Colorado state regulators came up with a clever, high-tech solution to this conundrum, a “seed-to-sale” RFID tracking system.  These tags contain the facility's retail or medical marijuana license number, a product serial number and a "secure ID" chip inside the tag -- all of which are trackable through an inventory database that both the state and the marijuana business can access.

The system also creates transport manifests so gangapenuers and state regulators alike will know if even a single package of Soul Diesel goes missing in transit.  With this level of transparency in the marijuana supply chain, regulators can be reasonably certain that all marijuana sold in Colorado dispensaries originated from legal, legitimate businesses.

But this is not just passive technology.  In additional to seed-to-sale tracking, state regulators have the ability with this tracking software to actually freeze the supply chain in real time.  If it appears that a portion of product being transported comes from illegal sources, regulators can prevent that marijuana from being authorized for final sale and local authorities can be alerted to investigate further.

The tracking system ends at the point of sale, it doesn’t follow the consumer out of the store (or at the consumer’s doorstep if cannabis home-delivery industry ever becomes legal in Colorado– yet another way a state’s regulatory structure shapes the supply chain). 

 K. Kelly inside her medical cannabis cultivation facility in Denver, Colorado. Photograph: Matthew Staver/Washington Post

K. Kelly inside her medical cannabis cultivation facility in Denver, Colorado. Photograph: Matthew Staver/Washington Post

From Growers to Edibles: Other Regulatory Requirements

High tech tracking is just a single thread of the regulatory tapestry.  Under Colorado’s regulatory framework, growers are currently subject to another fractional regulation – an 85/15 Rule.  This rule provides that producers must demonstrate to state regulators that they are legally selling at least eighty-five percent (85%) of their product legally before getting permission to add additional plants to their operation.

And if you’re thinking about getting into the booming edibles industry, there are plenty of additional regulations to comply with.

For example, to prevent paranoid freakouts where people (like influential NYT columnists) become convinced that they had died Colorado is requiring that cannabis edibles be easy for consumers to divide into 10 milligram “servings” of THC.

Edibles are also required to undergo testing for food contaminants, such as E. coli and salmonella.  And if your edible product of choice is a granola or a soda, then you are going to be subject to additional packaging requirements as well because the active psychoactive ingredient can't be easily separated from the rest of the food/drink.

Awareness and Mastery of Regulatory Frameworks is Essential for Cannabusiness

So while the consumer probably doesn’t need to entertain any feelings of paranoia over the RFID system, those that are a part of the cannabis supply chain should absolutely exercise caution by carefully following regulatory policies. 

While the federal government has stated that it won’t move against recreation retail outlets in areas where it is legal, the U.S. Attorney General has stated that it will be specifically looking for dispensaries that are disregarding federal law, and will not hesitate to intervene if cannabusinesses cannot

  • · Keep marijuana away from kids;
  • · Ensure that criminal gangs are kept out of the equation;
  • · Ensure that Marijuana is not being trafficked to other states.

As such, participants in the Colorado cannabis supply chain need to remain mindful of how the complex web of state and federal regulations interact and take care to stay on the right side of the law.

Spotlight On Marijuana Legalization 2015: New England

So when I reached my prime/ I left my home in the Maritimes
Headed down the turnpike for New England, sweet New England “

Paul Simon - Duncan

 

2012 and 2014 were watershed years for marijuana legalization marijuana legalization.  Colorado and Washington blazed a trail for decriminalization and legalization for recreational use. 2015 was the first year that retail sales of recreational marijuana were implemented in these states, and regulators and entrepreneurs have worked to hammer out the logistics of implementing this new statutory scheme.

However, while all eyes have been watching the implementation of the new legalization laws unfold in Colorado and Washington, the movement for legalization has not been limited to these states.  The 2014 midterm elections contained ballet initiatives in Oregon, Alaska and Washington D.C. 

So it appears as though the West Coast has taken the lead in legalization initiatives over the last few years.

This could soon be changing, though.

In November 2016, at least five states are expected to vote on similar ballot initiatives - Arizona, California, Maine, Massachusetts, and Nevada -- and one could potentially appear on the ballot in Missouri. So far, legalization advocates have been relying on voter-backed initiatives to get legislation passed.  Ballot initiatives are an important way to address issues that legislatures, for whatever reason, fail to address.  But just over half ofstates have some form of ballot initiative procedure, the remaining states must work through their respective state legislatures, which can be an uphill battle, especially in more traditional and conservative states.

However, a number of states have chosen to take measures to reformlaws related to cannabis. According to the Marijuana Policy Project, by the end of 2017, marijuana could be legalized in 15 states and D.C., which would comprise 26% of the nation's population.

Because states vary widely in the procedures and approaches toward legislative reform of marijuana laws, it’s important to have a basic understanding of how some states have chosen to approach the issues.

This post is the first in a series that will examine regional efforts to reform state marijuana laws.  While the West Coast has been the vanguard of legalization efforts over the last few years, the rest of the county is taking similar measures.  New England, for example is taking steps toward legalization for medical and recreational use.

Below is a summary of steps that New England state legislatures have taken toward decriminalization and legalization:

1.    Maine

  • Max. fine for small amount: $600
  • Marijuana related arrests in 2012: 3,202
  • Marijuana arrests per 100,000: 241
  • Minimum penalty classification : Civil violation

Compared with similar states in the region, Maine has a relatively high rate of marijuana use, with an estimated 16.24% of residents 12 and older having smoked pot at least once in 2012, the seventh highest rate in the county. In 2013 Public Policy Polling found that 48 percent of Maine voters supported legalization, while 39 percent were opposed and the rest were undecided.

Maine decriminalized marijuana possession back in the 1970s. Under the current law, as amended in 2009, possessing less than 2.5 ounces is a civil violation, punishable by a fine of $350 to $600 for up 1.25 ounces and $700 to $1,000 for more than that.

Portland, the state’s largest city, voted to legalize possession of small amounts of marijuana in 2013.  While state law enforcement continues to enforce the state’s prohibitionist laws, possession of up to 2.5 ounces of marijuana is not punishable by jail time, although possession still carries a maximum fine of $1,000.

Far from being contented with the status quo, Maine’s Marijuana Policy Project has begun collecting signatures for a ballot initiative to legalize marijuana in the State.  It is one of two proposals to legalize recreational cannabis for residents 21 ad older, led by the Maine Legalize Marijuana Initiative and the Maine Marijuana Legalization Initiative.  Each of these has potential to appear on the ballot in November 2016.  Petitioners would need to collect approximately 61,000 signatures to get the measure to the polls.

Several cities are following Portland’s lead in spearheading de-criminalization efforts as well. 

It seems Maine wants to embody its state motto: Dirigo, which means “I guide,” by leading the way for legalization for New England and other East Coast states.

 

2.    Massachusetts

  • Max. fine for small amount: $100
  • Marijuana related arrests in 2012: 2,596
  • Marijuana arrests per 100,000: 39
  • Minimum penalty classification : Civil offense

In 2008 Massachusetts voters approved marijuana decriminalization by a margin of nearly 2 to 1.   This initiative decriminalized possession of up to an ounce of marijuana, making it a civil offense punishable by a $100 dollar fine. While there were more than 10,000 marijuana-related arrests in 2008, there was just about a third as many such arrests in 2009, the first year the law took effect.  Clearly, decriminalization has allowed for more efficient allocation of law enforcement resources in the state, which is something that other states should consider when examining their own criminal code.

In 2012, Massachusetts voted on and approved medical use of marijuana.  Recent polls suggest that 53 percent of likely voters favored legalization, while a Boston Globe poll last July put support at 48 percent.  

Along with Maine, Massachusetts is one of the states that is eyeing a 2016 ballot initiative, which could have Massachusetts seeing green as early as 2016.

The Marijuana Policy Project has filed a referendum for legalization, and is currently drafting model legislation for legalization for recreational use. If petitioners collect enough signatures and the measure passes, adults in the state would be allowed to grow, buy, and use pot recreationally. It would be sold and taxed like alcohol.

 

3.    Vermont

  • Max. fine for small amount: $200
  • Marijuana related arrests in 2012: 926
  • Marijuana arrests per 100,000: 148
  • Minimum penalty classification : Civil violation

According to a Rand research study on marijuana legalization, Vermonters consumed between 15 to 25 metric tons of marijuana, worth between $125 million and $225 million, in 2014. More than 19% of state residents 12 years and over reported using marijuana in the past year, the third highest share nationwide.

The Rand study concluded that Vermonters could reap between $20 million and $75 million per year in taxes if it decides to legalize and regulate cannabis.

Pursuant to a bill passed on June 6, 2013, possessing less than an ounce or less of the drug is not punishable by incarceration in Vermont, but is rather punishable by a civil fine of up to $200. Possessing more than an ounce, the selling of any amount, or cultivating the plant, however, is considered a misdemeanor. Selling a half ounce or more, or cultivating three or more plants, is a felony.

However, Vermont appears to be taking steps toward legalization as well. In 2015, Senator David Zuckerman (P-Hinesburg) introduced S. 95, which would replace Vermont’s prohibition of marijuana with a system of sensible regulation. Rep. Chris Pearson (P-Burlington) introduced an identical bill in the House. Although the legislature adjourned for the year in May without voting on a marijuana regulation bill, an important Senate committee held several meetings seeking to determine “The Vermont Way” to end prohibition. These meetings are expected to lay groundwork for a new marijuana regulation bill that will have a chance of becoming law in 2016.

 

4. Rhode Island

  • Max. fine for small amount: $150
  • Marijuana related arrests in 2012: 2,320
  • Marijuana arrests per 100,000: 221
  • Minimum penalty classification : Civil violation

Marijuana use in the small New England state is pervasive. An estimated 20% of Rhode Islanders aged 12 and up used the drug at least once in 2012. In fact, no other state in the country had wider use than Rhode Island.

Though Rhode Island has not legalized cannabis for recreational use, it’s criminal and civil laws are currently some of the most lenient in the nation.  Possession of up to an ounce is a civil violation punishable by a maximum fine of $150. First time offenders do not face jail time or risk a criminal record. However, possession of amounts in excess of an ounce carry criminal penalties and potential jail time.

On June 25, 2015 the Rhode Island Legislature recessed with many bills still awaiting final approval. One of these bills was the Marijuana Regulation, Control, and Taxation Act (S 510/ H 5777), which would regulate the sale, use and possession of marijuana like alcohol.  Recent polling found 57% of Rhode Island voters support replacing marijuana prohibition with regulation.

Introduced by Rep. Scott Slater and Sen. Josh Miller, S 510/ H 5777 would allow individuals 21 and older to possess and cultivate limited amounts of cannabis. It would also direct the Department of Business Regulation to license and regulate marijuana producers and at least 10 retail marijuana stores. A sample estimate prepared by Marijuana Policy Project estimates Rhode Island can expect to raise roughly $58 million each year off the taxes proposed in this bill.

 

5. Connecticut

  • Max. fine for small amount: $150
  • Marijuana related arrests in 2012: 3,747
  • Marijuana arrests per 100,000: 104
  • Minimum penalty classification : Civil penalty

In a March 2015 poll conducted by Quinnipiac University, 63% of Connecticut residents (and 80% of residents under 30) surveyed said they would be in favor of legalizing the possession of small amounts of marijuana for adults.

The state decriminalized marijuana use in 2011, and the bill provided that any possession of the substance up to a half of an ounce would have a maximum penalty of a $150 fine and could not be punishable by jail time.

Before the law passed, the state’s marijuana arrest rate in 2010 was 259 per 100,000 people. By 2012 the rate had dropped to just 104 such arrests per 100,000, the sixth lowest rate in the country.

Several bills for legalization of recreational cannabis have been introduced in the 2015 legislative session. Rep. Edwin Vargas’s HB 6473 and Rep. Juan Candelaria’s HB 6703 would each replace Connecticut’s prohibition of marijuana with sensible regulations for adults’ use.

 

6. New Hampshire

  • Max. fine for small amount: $2,000
  • Marijuana related arrests in 2012: 3,553
  • Marijuana arrests per 100,000: 373
  • Minimum penalty classification : Misdemeanor

Marijuana is not currently decriminalized in the Granite State. Possession of any amount is a Class A misdemeanor punishable by a maximum sentence of 1 year imprisonment and a maximum fine of $2,000.

In 2015, New Hampshire Rep. Rep. Adam Schroadter (R-Newmarket) and seven co-sponsors introduced HB 618, which would have decriminalized marijuana use in New Hampshire for possession of up to ½ ounce.  The bill passed the House by a huge 297-67 margin on March 1, 2015.  However, after lengthy debate in the Senate, the bill was tabled as of June 4.

While some politicians continue to oppose sensible reforms to the state’s cannabis laws, public opinion continues to turn strongly against the prohibition of marijuana. In July, new polling from the University of New Hampshire Survey Center found that 60% of NH residents support legalizing marijuana and 72% support decriminalization.