Colorado

Colorado Updates Guidance for Public Investment in Cannabis Companies

The Colorado Department of Revenue released emergency rules on August 1, 2019 to implement HB 19-1090, which allows publicly traded companies, and unlimited investors from outside of Colorado, to invest in and own marijuana businesses as of November 1, 2019. The state regulator has updated its guidance for cannabis licensees that are seeking to obtain an investment from publicly traded companies or private investment funds before or after November 1, 2019 in Industry-Wide Bulletin 19-05.

House Bill 19-090 repealed the ban on investors in marijuana businesses that are publicly traded companies, as well as the 15 person limit on the number of out-of-state investors. The new law is complex and requires companies to disclose information about controlling beneficial owners, indirect financial interest holders, and affiliates. Colorado’s cannabis regulator must evaluate whether these entities qualify as a suitable license holder.

Below are some key highlights on the guidance provided prohibited and permitted transactions with publicly traded companies or qualified public funds ahead of the November 1, 2019 effective date.

Prohibited Transactions:

  • Licensees may enter into a binding agreement prior to November 1, 2019 so long as there is not transfer of control. Licensees not enter into agreements that would result in a transfer of ownership or trigger the submission of an application to the state as required under HB 19-090 including transactions with public companies or transactions that require disclosures and suitability determinations for passive beneficial owners or indirect financial interest holders. Entities may enter into a letter of intent or other non-binding agreement to engage in a transaction after November 1, 2019. The licensee may not accept a deposit or other form of payment under the agreement.

Permitted Transactions:

  • Licensees may raise capital from passive financial beneficial owners or other indirect financial interest holders that falls below the disclosure and suitability approval limits. Licensees are required to use reasonable care to ensure that the financial beneficial owners and indirect financial interest holders are not prohibited from holding a license. Colorado’s proposed rules outline a process that licensees must use.

Colorado Steps Up Inspections and Testing Requirements Following Marijuana Recall

The Colorado Department of Revenue and the Department of Public Health and Environment issued a recall of products manufactured by Herbal Wellness LLC due to potentially unsafe levels of microbial contamination. A Public Health and Safety Advisory indicates that Herbal Wellness also failed to test certain harvest batches.

The Colorado regulator recalled 44 batches of contaminated medical and recreational marijuana that were produced between February and July 2019, and 66 batches of untested medical and recreational marijuana that were produced between December 2018 and May 2019. The recalled harvest batches included strains with names such as Chernobyl, Agent Orange, Gorilla Glue and Jack the Ripper.

Colorado’s recall was announced the day after the regulator issued an industry-wide bulletin notifying firms that marijuana products must be tested for mycotoxin contamination beginning on September 15, 2019.

The Denver Department of Public Health & Environment (DDPHE) also announced that it will test products at 25 randomly selected retail marijuana stores for pesticides, total yeast, and mold. The DDPHE will use METRC to identify flower, trim/shake and pre-rolls that will be included in the assessment. The regulator will publish its findings.

Colorado’s focus on product testing comes as marijuana regulators try to convince consumers that legal cannabis products are a better option. By publicizing recalls, consumers can get a better understanding of the types of dangers posed by untested products.

Colorado Issues Guidance on Public Company Ownership Ahead of Rulemaking

The Colorado Department of Revenue announced that it will release proposed rules in early August to implement HB 19-1090, which allows publicly traded companies, and unlimited investors from outside of Colorado, to invest in and own marijuana businesses as of November 1, 2019. Until that time, the state regulator also released guidance on prohibited and permitted capital raising transactions.

House Bill 19-090 repealed the ban on investors in marijuana businesses that are publicly traded companies, as well as the 15 person limit on the number of out-of-state investors. The new law is complex and requires companies to disclose information about controlling beneficial owners, indirect financial interest holders, and affiliates. Colorado’s cannabis regulator must evaluate whether these entities qualify as a suitable license holder.

Below are some key highlights on the guidance provided prohibited and permitted transactions ahead of the November 1, 2019 effective date.

Prohibited Transactions:

  • Licensees may not enter into agreements that would result in a transfer of ownership or trigger the submission of an application to the state as required under HB 19-090 including transactions with public companies or transactions that require disclosures and suitability determinations for passive beneficial owners or indirect financial interest holders. Entities may enter into a letter of intent or other non-binding agreement to engage in a transaction after November 1, 2019. The licensee may not accept a deposit or other form of payment under the agreement.

Permitted Transactions:

  • Licensees may raise capital from passive financial beneficial owners or other indirect financial interest holders that falls below the disclosure and suitability approval limits. Licensees are required to use reasonable care to ensure that the financial beneficial owners and indirect financial interest holders are not prohibited from holding a license. Colorado’s proposed rules outline a process that licensees must use.

Colorado's 7 New Cannabis Laws Will Propel Industry Forward

The Governor of Colorado, Jared Polis, signed seven (7) new cannabis laws into effect. The laws will propel Colorado’s cannabis industry forward by opening doors to public capital, allowing on-site consumption and delivery licenses, and making strides in the development of a robust hemp industry.

Below are brief summaries of the 7 new cannabis laws.

Publicly Licensed Marijuana Companies - The new law repeals the ban on investors in marijuana businesses that are publicly traded companies, and repeals the 15 person limit on the number of out-of-state investors. Under the law, controlling beneficial owners must make certain disclosures, and these controlling beneficial owners may be prohibited from becoming a licensee if unsuitable. A controlling beneficial owner is a person that owns 10% of the stock in the marijuana business.

Marijuana Hospitality Establishments - The new law allows retail establishments and mobile hospitality establishments to permit on-site consumption of marijuana products. Retail storefronts may obtain a license from the local jurisdiction where it is located. Colorado’s regulators are charged with adopting new regulations to oversee this new license type.

Regulated Marijuana Delivery - The new law allows medical and adult use retail stores and transporters to apply for a delivery license. The law requires the state to begin permitting medical marijuana delivery licenses by January 2, 2020 and permitting retail marijuana licenses by January 2, 2021. Businesses holding multiple licenses must apply for a separate delivery license for each license held. A $1 dollar charge would be added to each delivery to cover the cost of increased law enforcement needs. The law prohibits the delivery of medical or adult use marijuana in any municipality or jurisdiction that prohibit certain marijuana establishments including retail stores.

Electronic Filing Of Certain Taxes - Requires the electronic filing of state taxes when an electronic filing system is created or for taxes due on or after January 1, 2020, whichever is later. The new electronic filing law will reduce the inefficiencies of manual processing.

Hemp Regulation Alignment With 2018 Federal Farm Bill - The new law aligns Colorado’s Industrial Hemp Regulatory Program with the requirements of the 2018 Farm Bill. Under the law, the Commissioner of Agriculture must establish a hemp management plan and adopt regulations to implement. The new hemp regulations can be structured to address concerns raised by the US FDA at its May 31 hearing on CBD products.

Industrial Hemp Products Regulation - Requires manufacturers of hemp products to register with the state and pay a $300 fee. The new law also authorizes the Commission of Agriculture to establish a working group that will study the regulation of hemp products. Finally, local jurisdictions are authorized to adopt regulations that establish licensing requirements and fees for businesses engaged in extraction, storage, processing or manufacturing of hemp products.

Institute Of Cannabis Research Role And Mission - The law creates the Institute of Cannabis Research that is to be located at the Colorado State University. The role of the institute is to perform research on the effects of marijuana and the efficacy of medical marijuana.

Colorado Thieves Break Into 34 Marijuana Dispensaries in 2019

The Denver police department issued a warning to the cannabis industry about an uptick in burglaries at marijuana dispensaries. Police indicate that the suspects broke into thirty-four (34) marijuana dispensaries during 2019 near major roadways using stolen Jeep Cherokees or Liberties.

The group of four men and two women use crow bars to enter the front door or through a glass window. Police are requesting that businesses ensure that motion sensors and outdoor lighting are working, and that video cameras are covering entryways. The police also recommends storing products in a safe when closed.

Colorado Passes Legislation Allowing Municipalities to Create Local Licensing Regime for Hemp Products

The Colorado Legislature passed a bill that allows local municipalities to adopt ordinances to license and regulate businesses that engage in the storage, extraction, processing, or manufacturing of industrial hemp or industrial hemp products. The bill will become law if it is signed by Governor Jared Polis.

The new law allows counties and local municipalities to adopt a local license fee for hemp businesses and establish licensing requirements. The local municipalities may not adopt additional food safety requirements if they conflict with state laws.

The new law also requires wholesale food manufacturers that create hemp products to register with the Department of Agriculture and pay an annual fee. The Department of Agriculture must establish a stakeholder working group to study the regulation of industrial hemp products that will meet on or after December 1, 2019. The working group must provide the Colorado Legislature with written recommendations.

Colorado Legislature Passes Marijuana Delivery Bill

The Colorado Legislature passed a bill that will allow medical and recreational marijuana stores to deliver marijuana to customer’s homes. The state will begin issuing medical marijuana delivery permits on January 2, 2020, and retail marijuana delivery permits on January 2, 2021. The bill allows stores to deliver of marijuana to a customer’ private residence so long as the customer resides in a city where a majority of voters agreed to permit delivery.

Local municipalities may prohibit the delivery of marijuana within their jurisdiction. The permit expires one year from the grant if the applicant is unable to find a local jurisdiction that will permit the activity. The marijuana retailer is required to charge a $1 surcharge for each delivery that is to be submitted on a monthly basis to the city where the retail store is located for law enforcement activities.

The bill also authorizes the creation of a distribution facility where marijuana may be centrally stored and delivered to other businesses. The license is valid for two years but cannot be transferred with a change in ownership.

Free Cannabis Legislative Tracker For 20 States: Access THC, Hemp And CBD Bills

Access our free legislative trackers for Arizona, California, Colorado, Connecticut, Florida, Illinois, Kentucky, Massachusetts, Maine, Michigan, Missouri, North Dakota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Tennessee, Utah and Washington. Review and access the cannabis & hemp bills introduced by the State Legislatures in the 2019-2020 session. The trackers include a summary description of the legislation, status and link to the full legislative text. The legislative trackers will be updated on a weekly basis.

US DOJ Rejects Cannabis Workers' Citizenship Applications

Denver issued a Marijuana Information Bullet to notify industry participants that the US Department of Justice (DOJ) has denied two applications for citizenship by persons who are employed in the cannabis industry. Denver has asked the marijuana industry to inform current and future employees about the negative impact that working for a cannabis company may have on an individual’s ability to become a US citizen or to stay in the United States. Persons who are impacted by this US DOJ policy should speak with an immigration attorney.

Free Cannabis Legislative Tracker For 20 States: Access THC, Hemp And CBD Bills

Access our free legislative trackers for Arizona, California, Colorado, Connecticut, Florida, Illinois, Kentucky, Massachusetts, Maine, Michigan, Missouri, North Dakota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Tennessee, Utah and Washington. Review and access the cannabis & hemp bills introduced by the State Legislatures in the 2019-2020 session. The trackers include a summary description of the legislation, status and link to the full legislative text. The legislative trackers will be updated on a weekly basis.