Finance

Colorado Taxes Pot

Colorado didn't legalize medical marijuana to make money, but since regulations went into effect, it has raised millions.
by | September 22, 2010
 

Colorado has a new revenue source. The state, one of 14 to legalize the use of medical marijuana, hauls in millions of dollars from marijuana growers, sellers and users via licensing and registration fees and a tax on retail sales.

Colorado legalized medicinal pot a decade ago, but it was only in 2007 that retail-style dispensaries to sell marijuana began springing up, selling a variety of cannabis strains, marijuana-infused products and delivery services -- all of which, the state came to realize, needed to be regulated. Colorado's Department of Revenue has been charged with setting up the licensing process, watching over the registry and auditing sales tax collections. As dispensaries are set up in states where it is legal to sell marijuana for medicinal purposes, those states are likely to face similar enforcement and collection issues.

To see how Colorado is handling the challenges, I talked to Matt Cook, senior director of enforcement for the state's Department of Revenue. Cook, who was enticed back from early retirement three years ago, expected to cover his old enforcement beat -- casinos, liquor stores and car dealerships -- but has now added medical marijuana to his repertoire.

This is an edited version of our conversation.

How much revenue does marijuana bring in?

We didn't pass laws in Colorado to develop a revenue base. Rather, it was a regulatory scheme to allow the use of cannabis for medicinal purposes for debilitating diseases. What happened is that in 2007 we began to see a proliferation of places selling medical marijuana and felt there was a need to put some guardrails on them. In our last legislative session, bills were introduced and passed to regulate things on the patient side and on the business side. These were not passed to create additional revenue or taxation. They were passed to regulate an industry. In connection with that, the industry has generated $8.2 million in application fees. Applicants are those who are going to engage in selling marijuana to patients. That is, they have a retail center. They also could apply for an infused-products license, which allows them to make edibles -- such as cookies or pastries -- and to make oils and tinctures. A cultivation license allows medical marijuana to be grown. To get a cultivation license, a person also must have a center or infused-product license. This is the first year of these licensing regulations. When the regulations went into effect, we took in the $8.2 million in application fees in about three days.

Were you surprised at the amount?

We had 809 centers apply. We had 309 infused-product manufacturers apply and 1,219 cultivation applications. We had projected 1,100 licenses, bringing in $6.7 million, so we were in the ballpark.

Does the licensing money go into the general fund?

It's important to know that the licensing money is earmarked. It goes into a cash fund for the enforcement division. It will pay for administrative oversight of regulations, hearings, criminal sanctions -- everything associated with regulating this industry. We enforce throughout the state. I have headquarters in Denver, Southern Colorado, Northern Colorado and a field office on the Western Slope. It's a big operation. We have one investigative, full-time employee for every 10 licenses out there.

What does that regulation involve?

We are the first in the U.S. to do it. It involves creating a statutory foundation where you can't operate without a license. There are regulatory protections. We intend to track the marijuana plant from the time the seed goes into ground until it is dried, cured and cooked into a cookie and sold to patients. We will monitor everything 24/7 with a Web-based video surveillance system that the industry will have to pay for. This is not new technology. It's like what you see at a pharmacy or a casino cashier cage. If you're at a casino, look up and you'll see the technology in place. At the point of sale, we will have cameras to monitor the weighing of the product so we can account for every gram. If the customer pays in cash, the cash will have to be laid out on the counter where our cameras can see it for the tax to be determined. We will monitor that the customer has the right credentials to make the purchase -- a patient registry card.

How do patients get a card?

They pay $90 for the card. Doctors and the health department have to qualify them -- that they have a disability that requires medical marijuana -- in order to acquire the card. Registry card fees go into another cash fund that covers the costs of administering the registry.

You collect a sales tax on marijuana as well. Where does that money go?

It is deposited in the general fund. The first $2 million goes to pay for substance abuse programs.

Colorado Gov. Bill Ritter was in the news a few weeks ago for taking $6 million from the marijuana fund to help balance the budget.

Ritter took money from the registry patient fund -- not from enforcement.

It sounds like medical marijuana is a solid source of revenue.

We don't look at it that way. It's too early in the ballgame to quantify its impact. We still are in the process of issuing licenses and fine-tuning the regulatory scheme through rulemaking. Applications for licenses were just filed August 1. So this is new money.

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