Image credit: Greg O'Beirne

Colorado Lawmakers Advance Bill to Allow Out-of-State Cannabis Investors

A Senate Committee voted in favor, but not before union members blasted Colorado’s cannabis industry.

Apr 19, 2019 6:55AM EDT Colorado

Jeremy Borden has worked for the Washington Post, Christian Science Monitor and City Bureau, among other publications.

Colorado’s Senate Finance Committee expressed its support for a bill Thursday that would dramatically alter the state’s strict ownership requirements for cannabis businesses by allowing publicly traded companies and outside investment into the state. The bill’s passage would be a sea change for Colorado’s cannabis companies, who say they have missed out on business opportunities with national players looking to expand into the oldest adult use cannabis market in the US.

HB 19-1090 previously passed the House 54-11. It now moves to the Senate Appropriations Committee.

The Finance Committee moved the bill on a 5-2 vote, with Committee Chairwoman Lois Court, a Democrat from Sterling, and Senator Paul Lundeen, an El Paso Republican, voting against. Court said she fears the promises of cannabis will not be unmasked until after more is known about its long-term effects, similar to tobacco. “As long as we are looking at expansion of the industry en masse, I am uncomfortable,” she said. Lundeen said his vote was “conflicted” but that he didn’t want to support a bill if it didn’t directly help eradicate illegal grows in rural Colorado.

Witnesses who testified, mostly representing companies or industry groups, were relatively unified that the bill would provide opportunities to expand their businesses and greater transparency for law enforcement. Even though there have been some concerns that small businesses would be squeezed by better-financed players, most industry members say outside investment would allow businesses to expand and compete. (Read more about what the bill does in Cannabis Wire’s previous coverage.)

Dean Heizer, the executive director of LivWell Enlightened Health, said the measure was important for his company. He said LivWell has 17 locations and nearly 600 employees in the state. “The only way the middle or those at the margins survive is if there’s more capital in the industry,” he said. “In this business, our effective tax rates are between 60 percent and 90 percent,” referencing the inability for cannabis companies to deduct business expenses. “You need capital infusions in order to continue operating.”

He also said the ability to offer employees ownership stakes — common for startups — would allow businesses to retain talent through these incentives.

Jim Burack, director of Colorado’s Marijuana Enforcement Division, told the Senate committee that while Colorado’s original law blocking out-of-state money was positioned as an effort to prevent bad actors, perhaps those with cash from illegal sales, from entering the legal industry, the restrictive requirements may have inadvertently encouraged an illicit market. The bill’s new transparency requirements and ownership tiers — as well as securities law that applies to large publicly-traded companies — will help Colorado officials track who is involved with companies and, he said.

He called the bill “a major step in the evolution of ownership.”

The relative consensus on the bill was broken by members of the United Food and Commercial Workers Union Local 7 who said the local cannabis industry should not be expanded until it learns to be more responsible in terms of how it treats its employees and the environment.

Randy Tiffey, a UFCW organizer, cited what he claimed were past state sanctions of cannabis companies around the use of pesticides and poor worker practices, benefits, and training. He said he had been working with lawmakers on amendments to the bill to address these labor concerns.

“This now-legal industry has proven that workers and public safety are minimal to them even though they want to be treated like other industries,” Tiffey said. “Before we allow outside money … this industry needs to clean up their act.”

Bill sponsor Senator Julie Gonzales, a Denver Democrat, said she was “surprised and disappointed” and that she and others continue to work on amendments to the bill to address the union’s concerns. Tiffey responded, “We have had discussions and it [has gone] nowhere.”

Senators seemed to mostly agree with industry representatives such as Jordan Wellington of the cannabis law firm Vicente Sederberg and VS Strategies. He said the bill made sense from both a business and law enforcement perspective, and would allow Colorado to catch up with other states that allow outside investors.

The continued inability to access that capital would lead to a “massive chilling effect. It makes it very, very difficult to build a new cannabis business or operate,” he said.

The General Assembly passed a similar measure last year, but it was vetoed by then-Governor John Hickenlooper. The investment bill is supported by current Governor Jared Polis.