Polis Budget Calls for $10 Million in Marijuana Business Projects and Tax Incentives

Governor Jared Polis is asking the state legislature for several million dollars in cannabis business and tax initiatives in his proposed budget for the next fiscal year.

The governor's budget proposal, released November 1, calls for $5 million in annual funding "in perpetuity" for the state Cannabis Business Office, a relatively new department under the Colorado Office of Economic Development and International Trade intended to spur business opportunities for communities impacted by the drug war. Polis is also requesting that the Colorado Marijuana Enforcement Division, the state's cannabis regulatory body, receive $3 million in funding to offset future licensing fee increases.

Created in 2021 by state lawmakers, the Cannabis Business Office was approved for $4 million in funding to create new grants, micro-loans and technical services for cannabis entrepreneurs who qualified for a social equity designation, but the funding was only allocated for 2022. Over the past two years, the Cannabis Business Office has doled out several rounds of grants and loans to dozens of new and growing cannabis businesses. To qualify, owners must prove they were criminally impacted by the War on Drugs, earn less than 50 percent of the state median income, or come from a community designated as a low-economic opportunity zone by OEDIT.

Polis appeared on the podcast Weed Wonks yesterday, November 2, to talk more about his marijuana proposals.

"We're dealing with solidifying their funding in perpetuity," he said of the Cannabis Business Office. "They got one-time funding in 2021 that was great, but now we want to continue to offer services like helping to link loans and grants to companies in this sector."

After years of annually increasing sales, Colorado's cannabis prices and sales started to recede in 2022. The state has since seen a 30 percent drop in the cannabis workforce from 2022 to 2023, while the number of licensed cultivations in Colorado has decreased by over 25 percent from last January to October of this year. The industry decline has also affected the MED, which is largely funded by cannabis business licensing fees.

The MED has already approved a broad set of increased licensing fees across the cannabis industry and instituted a hiring freeze to offset the drop in costs, according to department heads, but Polis would also like to see $3 million added to its funding "to better enable our units to process licenses quicker, effectively," and because "we don't want to add fees."

The governor is also proposing $2 million in tax credits for cannabis businesses located in enterprise zones designated by OEDIT. The sixteen designated areas in Colorado were chosen for their relatively high unemployment rates, low per capita income or slow population growth, according to OEDIT.

Because of the plant's federal prohibition, state-legal pot businesses are prohibited from federal tax deductions.

"We're trying to make sure that cannabis industries can participate in the same kind of favorable tax considerations as other industries," said Polis, who wants to "mimic" policies from the federal Small Business Administration, which is banned from working with cannabis companies.

"You can never get complacent, and we want to continue to be a leader in the legal cannabis market," Polis said on the podcast. "Obviously, many other states have caught up with where we are from the basic legalization of commercial and medical [marijuana]. That's no longer as innovative as it was when the time that we did it."

The proposed budget also includes $1.5 million in startup funding for the Hemp Center of Excellence, a state-run institute for commercial hemp research and development, with another $3.5 million in yearly funding through 2028. The Hemp Center of Excellence was born from a 2018 law intended to spur hemp research in Colorado on the heels of federal legalization. Since then, however, the Hemp Center pf Excellence has been mired in conflict over its leadership and funding, and construction still hasn't started.

Polis didn't comment on the Hemp Center of Excellence's status, but he did briefly touch on a recent law he signed that significantly restricts the sale of intoxicating hemp products in Colorado. The bill, which received mixed to negative reactions from hemp business owners, was largely pushed by the marijuana industry. Polis called it a "hairy" situation, adding that having to "draw the line between hemp-derived products and cannabis" was difficult.

If approved, all of the governor's proposed cannabis projects would be funded by the Marijuana Tax Cash Fund, a state fund built on pot tax revenue. Before any of these programs take place, however, Polis will need approval from the State Legislative Joint Budget Committee and probably a few lawmakers who are willing to add the funding into their bills.