High turnout for tax on pot

The Colorado Statesman

When Colorado voters this time last year backed legalizing recreational marijuana, Gov. John Hickenlooper had a tongue-in-cheek reply: “Federal law still says marijuana is an illegal drug, so don’t break out the Cheetos or Goldfish too quickly,” he responded, causing ire within the legalization community.

In the year since Colorado became one of only two states to legalize marijuana, the governor’s tone has shifted. What was once a joke has become a serious endeavor to prove to the nation and world that Colorado can safely regulate a marijuana marketplace without blockades by the federal government.

That’s why the governor’s office had thrown its weight behind Proposition AA, which voters on Tuesday backed by wide margins. The ballot question authorized a 15 percent excise tax on recreational marijuana for school capital construction, and a separate 10 percent special sales tax for regulation.

Marijuana tax campaign manager Rick Ridder offers a victory speech Tuesday night at the Magnolia Hotel where Proposition AA supporters celebrated their success.
Photo by John Schoenwalter/The Colorado Statesman

Legislative Council estimates that the tax will generate $27.5 million in annual excise revenue and $39.5 million in annual sales revenue. Of that sales revenue, $6 million will be shared with local governments.

The latest statewide returns as of Thursday afternoon indicated that the initiative passed 65 percent to 35 percent.

“Rip open the bags,” the governor joked on election night, responding to a question asked by The Colorado Statesman. “Cheetos and Goldfish for everybody.”

He later continued the joke on Twitter, saying, “Marijuana, Cheetos & Goldfish all legal in CO. Now we’ll have the $$ to regulate, enforce & educate.”

His sense of humor on the topic highlights a significant change in direction on the marijuana legalization issue. The governor opposed Amendment 64, the initiative last year that legalized a marijuana marketplace. Others joined in opposition, including Attorney General John Suthers and business leaders across the state that felt legalization would damage the state’s brand and make it known as the Amsterdam of America.

But with the legalization question in the rearview mirror, policy leaders began looking ahead. Marijuana tax supporters — led by the cannabis industry itself — eventually built a broad coalition, including Hickenlooper, Suthers, municipalities, business leaders and prosecutors.

Hickenlooper on Tuesday following the vote once again expressed his concerns with marijuana legalization. But he said revenue to regulate it is a step in the right direction.

“We heard people say marijuana should be treated like alcohol,” said the governor. “Well, alcohol is one of the most tightly regulated substances in America. So, we wanted to make sure we had the resources to ensure that kids don’t get access to pot, that people aren’t driving high. And what this initiative did was provide us the resources so that we will be able to go out there and create a regulatory enforcement… system that holds people accountable.”

Hickenlooper drew upon his own experiences as a former brewpub owner.

“If you serve alcohol to a minor, the first time… they’ll suspend your license for three days,” he said. “You do it a second time, they’ll close you down.

“I don’t like Colorado being the test case for marijuana. I think it puts us in a difficult position. It takes a huge amount of time. I would have rather that this evolution happen on a national level,” the governor continued. “But if we’re going to do it, it makes a huge difference to have the resources instead of having to try and do it on the cheap…”

Further evidence that the governor’s approach to legalization has evolved along with the burgeoning industry was the presence of his chief legal counsel, Jack Finlaw, at the Proposition AA watch party at the Magnolia Hotel on election night. Finlaw also co-chaired the Amendment 64 Implementation Task Force, which the governor convened last year to begin implementing the new marijuana marketplace.

Finlaw agreed that the governor’s office has shifted its approach. He said much of that has to do with a commitment by the industry itself to secure regulation. The majority of the marijuana industry spearheaded the tax initiative, making it perhaps the only industry in the nation advocating for a tax on itself.

“I’m very, very pleased that the industry stepped up… and ran the campaign and funded the campaign. It shows that they are very responsible partners in this with us,” said Finlaw.

“We found that we had a lot of common interests in doing this right,” he continued. “We all gained respect for each other. And so, yes, the tone did change because we learned that these folks are really entrepreneurs, and they want to be good business people… They’re really going to provide responsible businesses and jobs for Coloradans.”

Legislature gets the job done. But will it stick?

When the legislature this year began debating the tax question, as well as regulatory issues, the conversation quickly evolved. The puns continued as committees “hashed out” the details, but the debate became serious.

Remarkably, what was once a conversation on the morals behind legalization turned into the usual political squabbles. Republicans cautioned against a tax-and-spend mentality, arguing for lower taxes than the 30 percent that was originally proposed. The legislature ultimately settled on the 25 percent that voters approved on Tuesday.

Some Republicans also expressed concern over burdensome regulations on the industry, suggesting that it should be treated as a business like any other, where red tape should not be a hindrance to conducting business.

But one thing all policy leaders agreed on was that there would need to be strict enforcement. And that’s when Rep. Jonathan Singer, D-Longmont, began working on the tax question.

With passage of Proposition AA, state leaders are optimistic that they will have the resources necessary to regulate the budding industry.

Regulations required include a limit for driving stoned, seed-to-sale tracking, limitations on quantities sold to in-state residents and tourists, educational campaigns, marketing restrictions, limiting exposure to children, cultivation standards, security measures, and prohibiting indoor public smoking, among others. Few of that would have been possible without the tax.

“This is about fulfilling the promise of Amendment 64,” Singer said from the Proposition AA election night watch party. “It’s fulfilling the promise of legalizing marijuana and doing it in a responsible way.”

Singer pointed out that he was one of only a handful of lawmakers to publicly support Amendment 64 last year. He described Proposition AA as “the other part of the bargain.”

Sen. Pat Steadman, D-Denver, who was also a vocal supporter of the marijuana tax, said the tax was critical to safely implement the new marketplace.

“Had it not passed, the state would have been forced to divert funds from other essential programs to regulate this industry, which will now pay its own way,” said Steadman, who sits on the Joint Budget Committee.

But now the state must turn its attention to successful regulation. The Department of Revenue will lead the enforcement push, which has raised concerns. When it came to medical marijuana enforcement, the division fell short.

A state audit this year revealed that the Medical Marijuana Enforcement Division could not perform even the most important task of tracking medical marijuana inventory, or license businesses within deadlines. The audit also indicated that the division had misspent the resources it had.

Revenue officials have vowed that they have restructured the division and hired new more qualified leaders. The division has been transitioned to the Marijuana Enforcement Division. It did not release a statement following passage of Proposition AA, referring comment to the governor’s office.

But even Singer remains concerned, worried that the job may be a daunting task for state regulators.

“I’m absolutely concerned,” he said. “That’s my job, to make sure that the state does the best job possible.”

He pointed out that the legislation on the tax question requires the state to come back and explain to the legislature how the money is impacting local governments. It also requires regulators to say how the money is being spent.

“It’s about accountability…” explained Singer. “If we’re going to keep this drug out of the hands of kids and criminals, we can’t just say we passed the tax and go home.”

Rep. Dan Pabon, D-Denver, who led much of the regulatory work in the legislature, agreed that state leaders must remain vigilant.

“We have to double our efforts, and there’s no room for error on making sure that any regulatory system we have in place is well managed, has the right personnel and has the right vision and direction to carry out a unique experiment in the country,” said Pabon.

“I’m confident that we have the resources we need to effectively regulate and monitor from seed-to-sale this product, make sure it doesn’t divert into the black market, and I’m confident that we’ll have the resources we need to hire the right people,” he continued.

For Pabon, the passage of Proposition AA is the culmination of a year’s worth of work on crafting model marijuana legislation that is likely going to serve as an example for the entire nation.

“This was the last leg of the marathon, and yes, we trained and we worked hard to get to this point. It’s nice to cross the finish line with this behind us,” explained Pabon. “This is what the voters wanted… the marathon is over.”

But for local municipalities, the race to regulation is just beginning. The state created a framework for regulation, but left much of the decision-making up to local governments.

Denver, for example, is still grappling with how to enforce marijuana in its community. Denver Mayor Michael Hancock had called for a 5 percent local tax for enforcement. The City Council ultimately settled on asking voters for a 3.5 percent tax. Denver voters on Tuesday backed the separate tax by 69 percent.

Other communities that passed separate marijuana taxes include Boulder (8.5 percent); Breckenridge (5 percent); Carbondale (10 percent); Eagle County ($5 per transaction); Fraser (5 percent); Frisco (5 percent); Littleton (3 percent); Manitou Springs (5 percent); Red Cliff (5 percent); Silverthorne (5 percent); and Pueblo County (3.5 percent).

“I’m a Denver resident myself, so I can appreciate what the mayor and council members are struggling with because that affects me and my 11-month-old son and my wife and our daughter,” said Pabon. “So, I want them to get it right. I have a vested interest in them getting it right and us getting it right.”

Hancock expressed his appreciation to Denver voters for having supported the separate tax.

“With the passage of Measure 2A, we will have the necessary resources to responsibly regulate the new retail marijuana industry and to protect our neighborhoods, our children and our parks and other public spaces,” the mayor said in a statement.

Rift within marijuana community

Much of the marijuana industry supported the tax, led by those who had pushed for legalization and business leaders within the medical cannabis world.

“Mostly this is about the voters of Colorado telling the world we want to do it right,” Rick Ridder, the campaign manager for Proposition AA, said during a brief victory speech on election night.

“We are now poised to demonstrate to the world the benefits of ending marijuana prohibition and embracing this new system,” added Brian Vicente, co-author of Amendment 64 and a lead Proposition AA proponent. “The people of Colorado today helped us fulfill the promise of the Amendment 64 campaign…”

“Colorado is demonstrating to the rest of the nation that it is possible to end marijuana prohibition and successfully regulate marijuana like alcohol,” stated Mason Tvert, an Amendment 64 proponent and spokesman for the Marijuana Policy Project. “It is only a matter of time before voters and lawmakers in other states recognize the benefits and adopt similar policies.”

“It is rare for an industry to lead and fund a campaign to tax itself, but the Medical Marijuana Industry Group is comprised of business owners who understand that Proposition AA is a reasonable and responsible way forward,” concluded Michael Elliott, executive director of MMIG.

But not everyone in the marijuana community agreed with the tax. Fellow legalization supporters, many of whom had worked with proponents in passing Amendment 64, led the opposition to Proposition AA.

Their spokesman and architect was Rob Corry, a prominent marijuana attorney and vocal critic of over-regulation. A libertarian spirit, Corry had worried from the beginning that the tax would lead to burdens on marijuana users and businesses.

The opposition organized controversial joint giveaways, including one in Civic Center Park that is widely believed to have led to proposals for strict regulatory measures in Denver, including creating criminal penalties for odor and other nuisances associated with marijuana use. The city has since scaled back its proposal.

Corry expressed few regrets from Casselman’s Bar and Venue in Denver on election night where opponents gathered in a somber setting to watch the returns. The vibe inside Casselman’s was a stark contrast to the mood last year, where the entire marijuana community gathered to celebrate passage of Amendment 64.

But this year they were split — divided both in location and opinion. While many legalization supporters celebrated Proposition AA at the Magnolia Hotel, the rest of the community was burying their woes in free joints over at Casselman’s.

“This was a tax on a minority…” explained Corry. “We’re going to have a hard time because this tax is a minority of marijuana smokers. That’s economic fallacy.”

Corry said the tax is only going to empower the black market. Unlike other drugs, marijuana is easily accessible, and people will be able to find it underground without paying a tax, he explained.

And since medical marijuana is exempt from the hefty taxes, Corry believes doctors are going to utilize the opportunity to recommend additional so-called “red cards,” or certificates given to medical marijuana patients certifying their membership in the medical marijuana registry.

“The medical marijuana industry is going to flourish,” he said. “It’s going to expand the physicians who give these recommendations. They’re going to do very well, and they should.

“What Colorado marijuana user is going to pay to tax him or herself at these rates when medical is even more widely available?” Corry asked.

He does not believe that the Department of Revenue will be able to adequately regulate the new marketplace, despite the money.

“I have sympathy for the Department of Revenue,” said Corry. “They’re not going to be able to enforce it. It’s going to be a joke.”

As for the divide within the community, Corry acknowledges that leaders from both sides will need to bridge the gap. Cannabis supporters will still need to lean on each other as local governments and the state continue to grapple with regulation.

Corry had invited Proposition AA supporters to his watch party at Casselman’s, including Hickenlooper, Suthers, Steadman, Pabon, Singer, Vicente, Tvert and Elliott, among others. They did not show.

“We all live here in Colorado, we will all need to live under the system that exists going forward, and will all need to work together to effectuate a regulated legal market in marijuana,” read the invitation.

“Our movement was fractured,” added Corry. “A minority of our movement was paid to advocate for the tax… But I think both sides ought to bridge the divide.”