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Four States Could Legalize Retail Pot. What Does That Mean for Colorado?

More states are joining the cannabis legalization bus, but Colorado is likely to hold a front seat for some time.
More states are joining the cannabis legalization bus, but Colorado is likely to hold a front seat for some time.

As more states vote on recreational cannabis laws in the 2020 election, Colorado's cannabis industry is still trying to measure the impact.

In the face of budget cuts and lost revenue during the coronavirus pandemic, the extra cash flow from taxing a regulated cannabis industry is appealing for many states and localities. Colorado continues to generate large amounts of tax revenue from legal pot, with monthly dispensary sales setting records more than once this summer.

But on the heels of a a report estimating that Texas could bring in $550 million annually if marijuana were legalized and taxed similarly to Colorado (and a tweet from Governor Jared Polis jokingly asking Texas not do it, so Colorado can continue reaping in tourism and pot dollars), it's becoming more likely that Colorado's pot industry will only have more competition in the future.

Texas probably won't legalize recreational cannabis within the next year, but recreational cannabis is now legal in eleven states and Washington, D.C. And four more states will vote on legalizing recreational pot November 3: Arizona, New Jersey, Montana and South Dakota, while Mississippi and South Dakota voters will also decide on medical marijuana use.

As cannabis remains federally illegal, “interstate commerce is not allowed, and that kind of creates bubbles,” according to Morgan Fox, media relations director for industry trade group the National Cannabis Industry Association. However, Fox adds that as more states legalize cannabis, the industry will gain more credibility at a national level, which will help financially stronger cannabis businesses.

“The cannabis industry has become much more legitimate both in the eyes of the public [and of] officials and government agencies,” he says.

Momentum can snowball in Congress as more states go green, and that could help Colorado's cannabis business owners in the long run, according to Truman Bradley, director of the Marijuana Industry Group, a Colorado-based trade association.

“It’s one thing when, maybe in years past, only a dozen states had legalized. It was harder to have those conversations [about cannabis laws] at the national level. But with each new state that comes online, the national representatives of that state all of a sudden have a vested interest in protecting the small business owners from that state," Bradley says. "And so, in a roundabout way, each state coming online has the ability to really help Colorado business owners.”

Bradley hopes that as momentum for cannabis legalization grows state by state, there will be changes to federal policy, including an update on Internal Revenue Code Section 280E, which bans state-licensed cannabis companies from deducting business expenses in their tax payments. He also hopes to see banks allowed to work with cannabis companies — a cause close to Colorado Congressman Ed Perlmutter, who's been pushing a bill for the better half of a decade that would protect bank and cannabis industry relationships.

Fox and Bradley both believe that cannabis companies operating in multiple states will continue to develop as the plant is legalized elsewhere. Colorado has its fair share of multi-state operators, in part because other states are more willing to grant cannabis licenses to companies with proven success and legal compliance, Bradley adds.

“A big part, in my opinion, of the ‘secret sauce’ is the ability to execute — the ability to bring a good harvest in, to run a tight, compliant team. And the companies that have successfully been doing this for now almost a decade are perfectly positioned to be a good operator in other states," he says.

One state voting on recreational cannabis use this year, Arizona, borders Colorado, while Montana isn't very far away on the map, either. 

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It’s unclear how or if Colorado’s cannabis industry would be affected by neighboring states legalizing cannabis. Fox says it’s too early to make any predictions, because cannabis industries and regulations can differ dramatically between states. And if either state allows adult-use cannabis, it will take some time before customers in that state can purchase cannabis as new laws are implemented.

“I don’t think we’ll see much of an impact for at least a couple of years, until the states that pass the laws are able to implement regulated systems. And even then, it might be a while before you start to see stores opening. There could also be local-control issues, where cities and localities either on the border or elsewhere decide to opt-out of regulated cannabis businesses,” he says.

Arizona, Montana and New Jersey have all established medical marijuana industries and dispensaries, but South Dakota and Mississippi would both essentially be starting from scratch.

Bradley believes that even if border dispensaries lose regular out-of-state customers, tourists will still come to experience Colorado's outdoors — and buy weed during their visits. “What I will say is Colorado is a tourist destination — not just people flying in, but people driving in. And I don’t see that changing,” he predicts.

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