Yesterday, Colorado’s House Finance Committee unanimously endorsed a bill that would allow publicly traded companies and outside investors access to the state’s strictly-regulated cannabis market.
Without such legislation, cannabis industry advocates told the committee, Colorado cannabis companies will be driven from the state, where they say they are unable to expand or offer employees adequate compensation.
Members of the House Finance Committee largely agreed with cannabis company owners and other industry advocates on the point that Colorado’s strict requirements have left the state’s companies, once the privileged first-movers in the nation’s cannabis industry, falling behind operators in other states.
While there was some concern before the meeting that the state’s smaller businesses could be disadvantaged by the bigger players with access to significant private investment, those who testified said any size business needs access to capital because the industry is forced to operate in cash and cannot deduct business expenses.
Finance Committee members unanimously endorsed the bill, HB 19-1090. It will next be heard by the House Appropriations Committee.
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An amendment was also added that acknowledges that too few women and minorities have a stake in the cannabis industry. Equity in the cannabis industry is a growing flash point in policy discussions as Wall Street money becomes more plentiful and the communities ravaged by America’s war on drugs haven’t seen enough of the benefits from cannabis tax dollars or businesses. Rectifying that disparity is at the heart of a bill reintroduced last week by U.S. Sen. Cory Booker.
Colorado Rep. Leslie Herod, the Finance Committee’s chairperson, said she would support the bill with the addition of the amendment that encourages more equity in Colorado’s cannabis industry. The amendment does not require minority or women-owned businesses but said the issue is of “substantive importance.”
“The equity piece is something that I have questioned a lot,” Herod said before casting her vote. “We’re bringing in a lot of out of state investors and money that isn’t necessarily going to change the equity paradigm here in Colorado.” She also said of industry and business owners that, when it comes to increasing equity, “We’ll be expecting them to put their money where their mouth is.”
Business owners said the equity issue and the bill the committee was considering go hand-in-hand. While the bill is similar to one passed by the legislature last year that would allow publicly-traded companies to operate within the state — which was ultimately vetoed by former Gov. John Hickenlooper — the current version goes further by dropping stringent outside and passive investor restrictions that had left Colorado companies out of the recent Wall Street and private equity boom financing the increasing corporatization of cannabis.
Dean Heizer, the executive director of LivWell, who was involved with the bill’s drafting, told House members that there were transparency provisions that would allow state regulators to scrutinize investors while providing companies with the ability to access capital or go public, which is becoming more common on Canadian exchanges.
The measure, sponsored by state Reps. Matt Gray and Kevin Van Winkle and Senators Julie Gonzales and Owen Hill, would not only drop the ban on publicly-traded cannabis companies ban but also:
- Repeal a prohibition limiting those who could benefit from a Colorado cannabis company to 15 people;
- Create new tiers of license holders, distinguishing between reporting requirements for those with controlling or passive stakes, defined by 10% or more control of a cannabis and those with less, who advocates argued shouldn’t have to meet the same transparency requirements;
- Limit the authority of state regulators to impose rules beyond those expressly laid out in state law.
Heizer said the bill was “model legislation” and would allow LivWell to capitalize and offer its employees ownership stakes. “This will float the boat of all businesses,” he told the committee.
Shannon Fender, the Director of Public Affairs for the cannabis company Native Roots, told House members the measure is “long overdue,” because without the ability to deduct employee benefits like other companies, Native Roots operates with a 77% effective tax rate.
“Lack of investment opportunity creates the burden we have,” Fender said, adding that employee benefits would expand with greater access to outside investment.
Kristi Kelly, who said she represented a large range of business license holders who are members of the Marijuana Industry Group, said Colorado is, in many areas, regarded as the nation’s best in terms of providing clear rules with effective state oversight. But, Colorado businesses face the outside investment hurdle while companies in other states have vaulted ahead.
“We’ve lost a lot of traction to other states,” Fender told the committee. “We’re now the most expensive, difficult market to operate in.”
Last year, when former Gov. Hickenlooper vetoed a similar measure, Medicine Man CEO Andy Williams threatened to move his company out of the state.
New Colorado Gov. Jared Polis, a longtime cannabis supporter in Colorado and as a member of the U.S. House, ran his campaign, in part, on a cannabis and business-friendly platform and has said he would support increasing outside investment in Colorado’s industry. (John Lord, the CEO of cannabis operator LivWell, contributed most of the $38,950 he has donated since 2014 to Bold Colorado, a group that supported Gov. Polis in his campaign last year, according to state filings. Small donations from Lord also went to bill sponsors Reps. Matt Gray and Kevin Van Winkle, $400 each in 2017 and 2018.)
Also Monday, the committee unanimously recommended HB 19-1055, a measure that would dedicate the state’s cannabis excise tax on adult-use cannabis toward funding school infrastructure projects. Most of the money, 90%, already goes to school projects and would increase the amount dedicated to school projects by $5.8 million this year and $5.6 million next year, if approved, according to a state analysis.
