Last month, as we've reported, the Amendment 64 task force recommended that retailers taking part in the recreational marijuana industry be required to grow 70 percent of their product under the vertical integration business model currently imposed on MMJ outlets. Earlier this month, the legislature's A64 joint committee rejected that advice, but it's back, sort of, in new compromise language that's passed the House. One activist sees the results as potentially allowing current MMJ businesses to undermine newcomers.
We've noted that under state law, medical marijuana dispensaries must obey the 70/30 rule, which means they are required to grow at least 70 percent of their own product, while acquiring no more than 30 percent from other sources.
This approach is known as vertical integration -- and it makes no sense to marijuana attorney Warren Edson. As he said to us a couple of weeks back, "the skills needed to be a retailer aren't necessarily the skills needed to be a grower -- but they pretty much force you to have the same skills or find somebody to work with who has the skills you don't. That works sometimes, but it doesn't always.
"Medical marijuana is one of the few industries, if not the only industry, where retailers are forced to own the whole line of production," he added. "It's a huge pain in the ass to run a business like that -- and to force that model into retail is ludicrous, particularly given that Colorado voted to regulate marijuana like alcohol, and alcohol is just the opposite."
With that in mind, Edson was thrilled that the vertical integration tack seemed to have been left on the sidelines. But yesterday, it reappeared in House Bill 13-1317, the main Amendment 64 regulatory measure. It's one of two tweaks that seem to benefit current marijuana-business owners transitioning from medical sales to the broader market.
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As noted by the Denver Post, House legislators extended a period of exclusivity for current marijuana outlets from three months to nine months, with new businesses blocked from applying for licenses prior to July 1, 2014. But Edson notes that the current version asks incoming entrepreneurs to file another form after January 1. Here's the section in question, as seen in the revised version of the bill on view in its entirety below::
After January 1, 2014, persons...may submit notice of intent to apply for licensure pursuant to this article. The state licensing authority shall establish a form for the notice and may collect a notice fee that shall be deducted from the amount of the license fee. The state licensing authority shall forward to the local jurisdiction the notice of intent to apply and one-half of the notice fee....
On and after July 1, 2014, persons...may apply for licensure pursuant to this article.
Translation: New businesses must let the state know about an intention to apply for a license six months before they're legally allowed to do so, at which point they've got to submit the formal application. And in Edson's view, this requirement may give current outfits a huge advantage.
"If you're in the business now and you find out on January 1 that Joe Schmo is putting in a store but can't apply until July 1, does that mean current owners can try to block them?" he asks. "I don't know; I'm just beginning to wade through all of this. But I'm not sure what the purpose of delaying things from January 1 to July 1 could be other than to give the current owners a head start."
Continue for more about the latest marijuana bill compromise. In addition, the vertical integration approach must be followed until October 1, 2014 under the latest language. Here's the language pertaining to the latter:
On and before September 30, 2014, a retail marijuana cultivation facility shall only transfer retail marijuana to its retail marijuana store or retail marijuana products manufacturer.
"This looks like a compromise that allows the current industry to maintain control of their complete line of production until that September date," he says. "And combined with the fact that folks coming into the business have to tell everyone they're doing it six months before they actually can creates a very difficult situation for a new business owner to come into
"I just don't understand why there's this need for a delay in the systems," he goes on, "and why there's not been more discussions about making the Medical Marijuana Enforcement Division work better and more efficiently." In reference to a terrible report about the MMED from the state auditor's office, he points out that "we're relying on a vertical-integration model that looks like it's barely been inspected. The audit says there's supposed to be seed-to-sale tracking, but it hasn't happened, and the system doesn't have the checks and balances that the alcohol system has. This would appear to be a less safe system."
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If changes aren't made in the Senate, however, it could soon be law. Here's the latest version of the regulatory bill.
More from our Politics archive: "Marijuana retailers may not have to grow their own -- and that's great, attorney says."