Colorado is Preparing to Accommodate Its Tax System to Handle Federal Legalization Ahead of the Curve

https://www.westword.com/marijuana/colorado-changing-marijuana-cultivation-taxes-federal-legalization-anticipation-12602319

I know every hippie since the 1960s have been saying, “It’ll be legal in the next five years man, you’ll see!” However, this time – the proverbial hippie may be right.

Never before have we seen federal legalization so close to becoming a reality than today – especially since the State of Colorado are beginning to prepare themselves for this inevitability. Colorado isn’t the first state to begin thinking about “interstate commerce” and their place within the national weed market – states like Oregon already have some sort of interstate policies ready to go.

Colorado however, has been the example state for legalization. While California might have a bigger potential in terms of revenue, Colorado set the national standard for “good legalization”. They have one of the most mature cannabis markets in the US and their model of legalization has influenced even other countries to follow suit.

However, while Colorado currently boasts a robust marketplace – it is in fact quite small compare to other potential Monster States such as California, New York, and similar places. The fact of the matter is that these other states can out produce Colorado and supply cheaper cannabis to more locations.

Therefore, it’s important that the state makes long term decisions and position themselves for the inevitable legalization of cannabis on a federal level.

Fortunately, being the mature industry that it is – Colorado officials are beginning to figure out how they will go about changing the tax scheme to be competitive on a national playing field. Currently the state has a 15% excise tax on the wholesale of cannabis – couple this with federal taxes and suddenly the cost of doing business in Colorado becomes incredibly high.

This could prompt companies to migrate their businesses to states that have more competitive tax plans which would hurt the Colorado market significantly.

Lawmakers are floating the idea of getting rid of the excise tax altogether, however this translates in cutting over a hundred million dollars of tax revenue from the State. This is something the state has come to depend on and it needs to shift the burden elsewhere.

In all likeliness, the tax burden will be shifted to the consumer in the form of a higher sales tax. This according to Bia Campbell, from VS Strategies.

"We don't want to put the state in a position where they're not going to be receiving this [funding]," Campbell said during an October 18 meeting on the topic. "To me, the answer to that is through sales taxes. If we get rid of the wholesale excises taxes and we move the revenue into the sales taxes, we're going to be solving a lot of the problems that other folks on this call have already brought up. And that would be a change the Colorado Legislature could make in 2023." - Source

This is because interstate commerce will surely follow post-federal legalization. This means that the rules of the game will change drastically. Products made in Colorado will not have the ability to compete with other states on a national marketplace.

Truman Bradley, Executive Director of the Marijuana Industry Group believes that by retooling the state rules and production limits will help ensure Colorado’s competitiveness within the greater marketplace.

"There are companies and industries standing by [for federal legalization], and we like to think we're a big industry, but we're not. We need to talk about a really deliberate rollout when it comes to interstate commerce," Bradley said during the MED meeting. "Some people think, 'Federal legalization? Boom. Game on.' But I have concerns about what that does to our in-state cultivators. Obviously, there is going to be a federal tax."

This is why legislators are thinking about cutting the 15% excise tax and moving the burden to some other sector – probably the consumer but we’ll have to wait and see how this plays out.

National Market and International Market

One thing that Colorado also needs to take into consideration is that Mexico is on the verge of getting some sort of legislation on the books. This according a Top Senator who commented that the government is ready to take some action.

Once the United States legalizes on a federal scale, it only makes sense that there would be North American Cannabis Trade happening between Mexico, The US and Canada.

Mexico has a very cheap labor force and more favorable weather than most of the United States. There are some states in Mexico that they call “The Eternal Spring” and is located near Volcanoes – giving it the same type of soil as California, except with a longer growing season.

Mexico will most probably also allow vertical integration, meaning that there will be many American firms eyeing the Mexican market to set up shop.

How will this impact the national marketplace?

For starters, cheaper production means lower costs – which means more competitive pricing. This would mean that the “Walmarts of Weed” would most probably opt in for imported cannabis which would make the “standard product” more accessible to a wider market.

While there will obviously still be American Hemp and Cannabis cultivation – but how it will evolve within the international marketplace will be interesting. For now, there are Colorado officials considering all of these elements and more.

The world is quickly shifting gears – I’m still not too sure whether we’re leaning towards a more invasive dystopian future, or one where we achieve interstellar space travel and colonize other planets to grow weed on.

SPACE WEED!

For now, Colorado will first have to navigate federal legalization and see how they will play the international game. Currently they have the tactical advantage and years of experience – however within a larger market, other states and countries would adapt over time and the playing field would level out.

What happens then is that cannabis evolves into something completely different – a commodity readily available at every major retailer in several different presentations. From recreational to medical – we’re all going to be surprised at how this industry will evolve over the next ten years.