Colorado Marijuana Businesses Anticipate Increased License Fees | Westword

As Marijuana Businesses Close in Colorado, Licensing Fees Likely to Increase

The Marijuana Enforcement Division's budget, dependent on business licensing fees and occasional legislative funding, has dropped drastically in recent years.
Colorado hasn't increased marijuana licensing fees for over a decade, but the state Marijuana Enforcement Division is running out of money as more businesses shut down.
Colorado hasn't increased marijuana licensing fees for over a decade, but the state Marijuana Enforcement Division is running out of money as more businesses shut down. Jacqueline Collins
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Colorado's marijuana businesses could soon see higher licensing fees as state regulators deal with their first cannabis cash shortage.

Created to oversee and regulate the state's medical and recreational marijuana industries, the Colorado Marijuana Enforcement Division (MED) does receive some operational money from the state legislature, but the majority of its funding comes from licensing fees and fines on dispensaries, growing operations and other legal pot businesses. As Colorado's marijuana industry suffers through a recession and more businesses shut down or leave the state, however, the MED is running out of money.

During the first two years of recreational marijuana regulation, the MED received $7.5 million in annual funding from state tax revenue, and then another $10 million in 2018 from the state legislature; since then, it's collected anywhere from $11 million to $15 million per year in fines and licensing fees. With inflation and government salaries increasing over the past seven years, though, Colorado Department of Revenue Executive Director Mark Ferrandino believes it's time for marijuana businesses to pay more for licensing.

"We had a large fund balance, but now we're in a negative position, which is not sustainable for the division," Ferrandino told a meeting of marijuana business owners and industry stakeholders on June 5. "The two options are decreased expenses or increased revenue. The third option is to go to the legislature and ask for something different, and we did try that."

The DOR, which oversees the MED as well as a handful of other industries in Colorado, requested about $2.4 million in extra funding from lawmakers in 2022 and 2023 but was rejected both times, according to Ferrandino. The use of an insolvency fund loan of just over $3 million was approved for the MED, he says, but the department — and, ultimately, business owners — would have to pay that back.

Although there are currently over 2,700 marijuana business licenses in Colorado, that number was over 3,500 in 2021. The decline in business licenses has affected the job market as well, with nearly 30 percent of the state's marijuana workforce cut from 2022 to 2023.

"We knew this was coming. This was not like we had our heads in the sand," Ferrandino said during the meeting, adding that the DOR commissioned a study into potential financial moves as the negative cash balance loomed.

While there have been no layoffs from the MED's staff of 105 employees, Ferrandino noted that the DOR hasn't refilled vacant MED positions, has reduced the size of the main MED office in Lakewood, and will be closing the MED's Colorado Springs and Longmont offices in efforts to save money.

The cost-cutting measures aren't enough to get the MED back above water, however, so Ferrandino says it's time for licensing fees, currently at just under $4,000 on average, to go up.

Colorado initially created commercial marijuana licenses in 2010 for medical marijuana businesses. The first and so far only raise in fee costs came in 2012, when the MED created recreational marijuana licenses in light of statewide legalization. Those fees were reduced from 2016 to 2021 to help spur business activity, but the cost has never risen above the original numbers set in 2012, Ferrandino noted.

Under the MED's proposal, the majority of marijuana business licensing fees would increase by about 8 percent on average, with a recreational dispensary license going from $4,940 to $5,930 and yearly renewal fees increasing from $2,130 to $2,300. Licensing fees for growing operations would be based on the size of the facility, plant count or ownership group, with smaller operations paying less than multi-state or publicly traded corporations. Social equity operators would have their initial license and first renewal fees reduced by almost 75 percent under the proposal, as well.

Ferrandino said the MED and DOR looked at other states with legal marijuana, and that Colorado's licensing fees would still be "significantly lower than any state that has a regulated marijuana market" on a cost-per-license basis.

Not everyone was buying the argument, though. Marijuana attorney Jordan Wellington, a partner at consulting firm VS Strategies, pointed out that Colorado has among the most state-issued marijuana business licenses in the country, and added that he believes the real question is: "What is the business opportunity that each license has to generate?"

"I think we have to be really careful in how we look at comparisons to other states," Wellington said during the MED meeting. "If you have a state with a large number of licenses and a low population, the potential revenue that can be driven from an individual license is very different from a state with a high population and a lower number of licenses."

Colorado also has some of the highest sales taxes for recreational marijuana sales on a city-by-city basis in the country, and is one of a small number of states to charge an excise tax on marijuana production and wholesale operations. As more states have legalized marijuana and the pot industry undergoes a recession across the country, local governments are feeling the squeeze, too. According to Crowley County Commissioner Roy Elliot, the number of local marijuana business licenses in his southern Colorado county is down by 30 percent from last year, while Crowley County's local marijuana revenue is down 52 percent.

"The marijuana industry is crumbling, so this is probably the worst time to think of a raise in rates. In our opinion, you guys missed the boat. Maybe these rates should've been looked at in 2021," Elliot told MED officials.

Ferrandino and MED Executive Director Dominique Mendiola said they are open to ongoing discussions about the fee increases, but it's going to happen regardless of opposition. The department is implementing an emergency rulemaking period to pass the increases before the 2023-2024 fiscal year begins July 1, with 120 days to approve a permanent update.

The pot industry should start getting used to these conversations, added Ferrandino, who said that most regulatory bodies institute annual or bi-annual increases on licensing fees. This first bump will "probably be one of the more significant ones," he said.

"There is no industry I’ve ever gone to that says, 'Yes! This is the right time to raise fees,'" he concluded. 
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