As we’ve mentioned before, Colorado is about to usher in some big changes to its regulated cannabis industry. During the last legislative session, Colorado legislators passed bills that:
- Expanded the qualifying conditions for medical cannabis
- Legalized deliveries
- Legalized consumption lounges (also known as hospitality establishments)
- Took a stab at social equity by creating an accelerator program that allows smaller entities to use equipment under the supervision of more established entities
- Opened the state industry up to investors from out-of-state and publicly-traded entities, and
- Authorized the MED to completely rewrite its regulations when the original rules expire this year. These changes necessitated a marathon of MED rulemaking sessions.
MED rulemaking sessions (or any other state’s cannabis regulatory body) are when a group of various stakeholders– regulators, business owners, citizens who will be affected, really anyone who is interested in having an effect on the new rules– sits down and debates the proposed language for a new set of regulations. It’s a process that is mandated by Colorado’s Administrative Procedure Act.
At Simplifya, we monitor every state’s rulemaking process so that we can be ready when the new, finalized regulations are released. Because we’re headquartered in Colorado, I got the unique opportunity to sit in on these meetings in person. It’s much better than streaming or calling in because you get to see everyone’s faces and gauge the atmosphere in the room. You get a better grasp on whose ideas are well-received, and who is just annoying the rest of the group.
All in all, the meetings were pretty productive. Some of the rulemaking sessions we attended in 2018 had a tendency to get derailed by stakeholders who were either uninformed or fixated on a certain “pet” issue, but this year was much more collegial and focused. In this post, I’m going to talk about each of the main goals I listed above, and some of the more notable issues that came up during those meetings (except for the qualifying conditions expansion because that only required the MED to add a couple of items to the preexisting list of qualifying conditions).
MED Rulemaking: Deliveries
The concerns surrounding cannabis deliveries were relatively as expected. Most people are concerned that deliverers won’t have the same amount of protection that cannabis transporters have had in the past. They’re probably right. It makes sense that once cannabis is treated more like a pizza delivery service, that deliveries will be much more frequent than previous large-scale shipments between businesses. And it would be prohibitively expensive to require every delivery vehicle to meet the same requirements as a large-scale transporter. Therefore, delivery drivers will probably be less-equipped to deal with threats like potential robbers. This led to discussions about requiring randomized routes, or constant GPS tracking and surveillance for delivery vehicles. These certainly sound like ideas that might be used to boost driver safety, but they should also be balanced with the fact each requirement increases the cost of doing business.
Some existing retailers were also concerned that delivery-only entities might be able to get an unfair cost advantage if they aren’t held to the exact same standards as the brick-and-mortar stores. Some also argued that deliverers should have just as many cameras as they do– dashcams, cameras in the storage area, even a body cam on all delivery employees and one that fully records every transaction. Massachusetts just started requiring its deliverers to wear body cams; a decision that has proven to be very controversial not only because of the cost and inconvenience for businesses but due to privacy concerns on the side of the customer as well. These kinds of suggestions were taken with a grain of salt though because the people suggesting them have the most to lose from a cost-cutting competitor entering the market.
One rural retailer brought up a valid point that had been largely overlooked due to the Denver-centric makeup of most attendees. A lot of the technological requirements that were discussed might not work so well in the mountains. GPS-tracking malfunctions all the time, and a potential regulation keeping drivers in constant radio contact with the business is likely to malfunction in the high country as well. If those technological requirements do make it into the final rules, mountain dispensaries will either have to request an exception or simply accept that they can’t conduct deliveries in certain areas. We’ll have to wait and see how this shakes out.
MED Rulemaking: Consumption Lounges
Many of the concerns surrounding cannabis consumption lounges mirror the concerns people have with traditional bars (like the ones that serve alcohol, remember?). How do we prevent budtenders from overserving people and how do we prevent intoxicated people from getting behind the wheel? The rules proposed prior to the meeting put a maximum limit of one gram of flower, one-quarter gram of concentrate, or products containing up to 10 mg of THC. To some users, this might sound like a low limit, but for a lot of casual users, 10 mg is definitely enough to lock you in the couch for a while. The working group seemed to generally agree that these limits were reasonable, even though some voiced their opinion that one standard serving edible is a bit low.
Most stakeholders understand and agree that most of the “overdosing” stories that have come out of Colorado stem from inexperienced, uneducated consumers overindulging on edibles. (I put “overdosing” in quotes because the results are not quite the same as when someone overdoses on cocaine or alcohol. Your life is never in danger– you’re just going to be uncomfortable and tingly for a few hours.) Due to this understanding, most group members wanted to require educational literature at all lounges so consumers know how to figure out their personal dosage and how long they should wait for the product to take effect. This will likely make it into the final rules.
One thing that typical bars don’t have to worry about is the community’s response to consumption. Many people consider the smell of cannabis to be a nuisance and will want any consumption lounges to take steps to prevent neighbors from witnessing or smelling the consumption. This consideration caused the group to get pretty far into the weeds about what does, and does not, constitute “visible.” Does a green privacy fence suffice, or will facilities have to place you in opaque, sealed rooms? The second option doesn’t sound like much fun, but it might be what will be required in order to keep the neighbors happy.
Lastly, the concern about the delayed effects of edibles is a serious one, and one that can’t be solved by making analogies to liquor. A shot of vodka hits the brain much more quickly than an edible, so the danger of getting behind the wheel before the intoxicating effects have peaked is much higher. Stakeholders proposed a mandatory waiting period after consumption, as well as educational requirements. We’ll see what makes it in, and what doesn’t.
MED Rulemaking: Accelerator Programs
Accelerator programs were included as part of the “Sunset Bill.” They create a group of “microlicenses” that are reserved for persons who have lived in low-income areas of Colorado for at least five of the last 10 years. The goal is admirable — established companies taking the time to train people who haven’t had the same advantages afforded to many business owners, and allowing them to use their expensive facilities in order to conduct that training. But the main problem stems from why those established companies would want to do such a thing. They’d be directly training future competitors, and potentially giving away valuable intellectual property and trade secrets to those competitors. On the other hand, microlicense holders need to be wary of the larger businesses tricking them into contracts that are unfairly one-sided or laying claim to a sizable chunk of their future profits.
Consequently, most of the workgroup discussion revolved around how to create the right incentive scheme. This was a problem because the MED has pretty limited tools when it comes to creating incentives. They don’t have much spending power so they can’t offer subsidies to anyone in the programs, nor can they give direct tax breaks. They can waive application fees but that prospect would have a small impact compared to the other incentives at play. Most stakeholders seemed to agree that there needs to be protections to prevent the low-income entrepreneurs from being taken advantage of, but how the MED expects to motivate the big actors to come and participate remains to be seen.
Rulemaking: Opening Investment
A bill that was vetoed by Gov. Hickenlooper finally came to fruition this year. The bill opens Colorado’s cannabis industry to investments from out-of-state entities, public companies, and venture funds, and also allows people to buy into a company even if they can’t afford a 10% stake, which used to be the minimum threshold. These regulations are actually already in effect since they were written as emergency rules and the rulemaking meetings for these rules were much more dry than the others.
Many of the disagreements were about reporting requirements. How those reporting requirements might clash with confidentiality protections or public-trading regulations in Canada, the U.S., and other countries. There were tax auditors pushing for more reporting requirements, and day-traders pushing for minimal paperwork. But there were no big-idea conversations like in the other meetings; only discussions over niche terms like “non-objecting investor” and “covered securities.” There wasn’t much intrigue, but the resulting rules look like they will allow a lot more capital to make its way into Colorado.
MED Rulemaking: Other Sunset Provisions
In addition to the accelerator program, there were a lot of changes from the Bill that sunsets Colorado’s old marijuana regulations. First of all, medical and recreational provisions will be harmonized. This harmonization will save a lot of headaches for regulatory analysts like us. Both sets of rules were largely the same, but only had minor differences like “patients” vs. “customer” and “retail marijuana cultivation” vs. “Medical Marijuana Optional Premises Cultivation.” It will be nice to only have to read through a set of rules once and not have to pick minor details from a mostly identical second set.
The new rules will bring new requirements for calculating equivalence between flower, concentrates, and other products. They will also allow more medical professionals, like dentists and certain qualified nurses, to make medical marijuana recommendations. It will also allow businesses to give employees sales-based incentives.
Additional minor debates arose around how to best remove redundant testing requirements, how to handle waste, and how best to incentivize recycling. But ultimately, at Simplifya, we are pretty confident that these discussions will result in a much-improved regulatory framework for Coloradan’s and their cannabis industry.
Our MED Wishlist
We recognize that there is a difficult balance to strike between creating a safe industry, and creating a financially stable one, but here’s what we hope to get out of all these rulemaking meetings.
- Rules that keep delivery drivers safe without over-encumbering new businesses.
- Reasonable serving requirements at consumption lounges, and a workable program to keep drivers under the influence off the road. Definitely more emphasis on education!
- An accelerator program that balances incentives. Incentives that assuage small entrepreneurs’ fears that they’ll be taken advantage of while also motivating big, established entities to share their secrets and expensive facilities.
- A new investment system that will foster growth in Colorado’s industry without inviting corruption or funds from illicit sources.
- A simpler, smoother bunch of regulations. One that’s gotten rid of most of the unnecessary medical/retail distinctions, removed redundant requirements and made things easier for business owners to operate.
Sure, it’s an ambitious list, but we think the MED is up to it!