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Colorado Marijuana Business Guide

by / Wednesday, 25 September 2013 / Published in Business, Colorado

Starting a Marijuana Retail Store in Colorado. Colorado officially passed Amendment 64 earlier in 2013, which will allow the sale of marijuana as a commodity by licensed sellers in 2014. However, state legislators are still hashing out details primarily affecting taxation, licensing fees and dispensary operation guidelines. Currently, Colorado pot laws comprising Amendment 64 regulate the possession, use and cultivation of recreational and medical marijuana by implementing a long list of statutes that will undoubtedly experience a number of changes during the first year of enforcement. However, individuals wanting to establish a marijuana retail store and operate it legally have been instructed by Colorado lawmakers to follow these guidelines.

Submitting an Application to Obtain a License to Start a Marijuana Retail Store

According to Amendment 64 (Redlined Version of Proposed Permanent Retail Marijuana Rules found at http://www.colorado.gov/cs/Satellite/Revenue-Main/XRM/1251633708470), application submission to be approved for licensing must be given to the proper local and state authorities in Colorado. The Colorado Business Express website (https://www.colorado.gov/apps/jboss/cbe/) offer a simplified method to register your pot business (or any type of taxable business) with the Colorado Department of Revenue. You can find essential documents needed to get the process started at: https://www.colorado.gov/apps/jboss/cbe/documents/cbeQualifyInfo.pdf. A copy of each application and half of the license fee required to be considered for a retail license will be sent to the locality in which the applicant desires to operate a recreational marijuana store.

Fees must be submitted along with the application. The cost of processing an application for the purpose of obtaining a license ranges from $2750 to $14,000. Colorado plans to start accepting license applications on October 1, 2013. Localities—meaning cities, townships and counties—are supposed to establish ordinances by this time specifying where interested applicants need to submit their applications for a retail marijuana license.

It is likely that many applicants will be rejected due to stringent eligibility rules concerning issuance of marijuana retail licenses. Applicants should be aware that a comprehensive background check will be conducted in addition to fingerprinting. Anyone with a criminal background involving felonies and/or criminal misdemeanors will undoubtedly be denied licensing. Other restrictions may also apply that have yet to be implemented by Colorado lawmakers.

Although a retail pot shop owner may have had a valid license for one year, renewal of the license is not automatic. Approved applicants will need to re-apply each year to maintain their license. State and local authorities perform yearly background checks to ensure shop owners remain in compliance with eligibility rules.

At this time, Colorado will not permit online marijuana retail businesses to operate in the state. Only “brick and mortar” establishments are permitted to sell recreational pot to consumers over the age of 21.

What to Expect as a Pot Shop Owner

Pot business owners will be expected to follow specific rules governing the cultivation and sale of recreational marijuana. Important guidelines that have been recently finalized by Colorado lawmakers include:

  • Owners must ask for proof of age before completing a transaction with a customer.
  • Establishments selling recreational marijuana must be equipped with security surveillance systems that can provide video footage of all sales if requested by law enforcement. Video quality should be high enough to allow customer facial features to be seen clearly by law enforcement.
  • Pot shop owners cannot sell or give away any items that are not related to marijuana. For example, retailers caught selling cigarettes, loose tobacco for cigarettes, food or beverages like Coke or alcohol may be subject to license revocation since their license only allows them to sell pot and the paraphernalia needed to smoke pot.
  • Owners will be allowed to sell up to one ounce of marijuana (per transaction) to residents of Colorado. However, they cannot sell more than ¼ of an ounce (per transaction) to people who are not legal residents of Colorado.
  • Each package of marijuana sold by a licensed pot store owner must be labeled according to the amount of THC contained in the pot. Industrial hemp, or pot that does not contain more than three-tenths of a percent of THC, is supposed to be regulated separate from cannabis strains that contain more than this amount of THC. In addition, packaging material must be opaque and pass child-resistant regulations.
  • Business owners will need to label their marijuana products using the following labels: THC, CBD, CBG, THCA and CBDA percentages by weight.
  • Although food containing marijuana cannot have more than 10 milligrams of THC per serving, licensed retailers can sell packages that offer more than one serving of the edible. For example, an owner can sell a package of four pot brownies as long as each brownie contains less than 10 milligrams of THC.
  • Colorado is currently implementing online inventory tracking software to facilitate documentation of a shop owner’s pot products from cultivation to packaging to sale. All businesses will be required to use this software.
  • If a pot shop owner wants to advertise, they are going to have to make sure they advertise in a way that kids won’t be exposed to the ads. The final law recently enacted regulating pot shop ads states that if there is “reliable evidence that more than 30 percent of the audience is under the age of 21”, advertisements for recreational marijuana retail establishments cannot be implemented. This includes television, newspapers, magazines and the Internet.
Finally, marijuana businesses will be subject to random inspections and/or audits by the MED (Marijuana Enforcement Division). One infraction could possibly result in the closing of a store or revocation of the owner’s license. Colorado’s Department of Revenue executive director Barbara Brohl explains that having an impressive list of rules regulating the industry is beneficial to everyone involved because having all these guidelines is more likely to keep the Fed’s nose out of the state’s business.

Be Aware of the Taxman

Making a legitimate living selling pot may seem like a dream job to any recreational marijuana user but Colorado’s Department of Revenue has already established hefty tax rates for retail shop owners. Knowing that legalizing pot is guaranteed to bring in substantial and much-needed revenue to a state that is as cash-strapped as the other 49 states, the Department of Revenue probably began implementing tax rates and regulations simply on the assumption that Amendment 64 would pass last year.

Pursuant to Amendment 64, an excise tax will be levied on pot sold to consumers by individuals possessing a license to sell recreational marijuana in Colorado. The rate determined by the General Assembly stands at 15 percent and is not exceed that amount before January 1, 2107. Following this date the General Assembly, according to Amendment 64, may vote to raise or lower the excise tax percentage and apply it to all sales of recreational marijuana. An interesting provision included in this tax regulation is the declaration that after the state has accumulated 40 million dollars from “any such excise tax”, all excess monies will be credited to the PSCCAF, or the Public School Capital Construction Assistance Fund.

According to a recent article in the Denver Post (http://www.denverpost.com/breakingnews/ci_23949699/denver-city-council-makes-big-decisions-retail-pot), the Denver City Council has decided to impose a 3.5 percent tax rate on pot store owners operating within the city limits. Mayor of Denver Michael Hancock had originally proposed a five percent tax rate to start with but decided otherwise for unknown reasons. Other rules that Denver-based pot retailers will need to abide by include:

  • Stores can remain open anytime between 8 am and 7pm, although a state law permits shops to remain open until midnight.
  • Retail marijuana entrepreneurs can sell their products in medical marijuana dispensaries without needing to install physical barriers between the two businesses.
All other Colorado cities will also be able to impose their own tax rates on retail pot shops, which could be as high as the 15 percent imposed by the state’s Department of Revenue.

A Few Last Items to Consider

The Colorado Department of Revenue report also states that any retail marijuana product must have health risk warnings similar to those found on cigarette packs printed on the outer packaging material. Warnings need to also inform the consumer that using this product outside Colorado is illegal and that the produced was “produced without regulatory oversight for efficacy, health and safety”.
With recreational pot sales scheduled to begin in Colorado on January 1, 2014, entrepreneurs interested in operating a pot store in Colorado should start the application process as soon as possible in order to resolve issues that may arise during the proto-stage of Colorado’s implementation of Amendment 64. Additionally, potential store owners should be aware that they could face resistance within a community that simply does not want a recreational marijuana shop operating in their municipality. Communities may cite reasons for opposing the establishment of a pot store in their area as involving the potential for recreational marijuana stores to attract undesirable characters as well as illegal or violent activity.
Additional Resources:
This link provides complete information about the finalized rules regarding the sale of recreational pot in Colorado:

http://extras.mnginteractive.com/live/media/site36/2013/0910/20130910_033420_Satellite.pdf

Link provides information about obtaining a sales tax license in Colorado: http://www.colorado.gov/cs/Satellite/Revenue/REVX/1176829212120

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