The governor of Colorado says his state should be at the “center” of the national and global marijuana trade once broad prohibition is lifted—and in the meantime he’s proposing new cannabis tax revenue distributions at the state level to further promote equity and streamline licensing as he pushes for federal reform.
Gov. Jared Polis (D) spoke about his newly released budget proposal in an interview on VS Strategies’s “Weed Wonks” podcast on Thursday, highlighting new ways he’s asking the legislature to appropriate millions of dollars in marijuana tax dollars for workforce development, licensing and industry investment in lower-income areas.
In his budget, unveiled on Wednesday, Polis is calling for $5 million in marijuana revenue to support the state Office of Economic Development and International Trade’s Cannabis Business Office, which focuses on economic development and job growth within the industry. He also wants $3 million allocated for licensing as well as a policy change to allow marijuana businesses located in economically distressed “enterprise zones” to take tax credits that are available to other traditional industries.
Under the proposal, the Cannabis Business Office would receive funding “in perpetuity,” Polis said, rather than rely on the one-time infusion it received in 2021. “We want to make sure that it continues to offer services like helping the link loans and grants to companies in this sector,” the governor said.
The governor’s budget document says that, beyond providing sustainable funding for the division’s existing work, the office will expand to “offer entrepreneurial aid to those outside of the cannabis industry and negatively affected by the war on drugs.”
On the podcast, Polis discussed how he’s also proposing $3 million in cannabis tax revenue to “better enable our units to process licenses quicker effectively.” Historically, that work has been funded by licensing fees.
“We don’t want backlogs. We want to turn these around quickly,” he said. “We don’t want to add fees. We want to make sure that we can continue to support that.”
He said that the approximately $2 million tax credit offering for marijuana businesses operating in enterprise zones would be a new way for the industry to “participate in the same kind of favorable tax considerations as other industries.” However, he acknowledged that there’s only so much the state can do for these businesses under the umbrella of prohibition—and specifically the inability of marijuana businesses to take federal tax deductions under an Internal Revenue Service (IRS) code known as 280E.
To that end, Polis reiterated that he “strongly” supports a congressional bill called the Secure and Fair Enforcement Regulation (SAFER) Banking Act to help normalize the marijuana industry at the federal level. But he added that what really needs to happen is federal legalization, which he hopes will enable Colorado to lead the sector at the national and international level.
“Colorado has kind of what you call a ‘first mover advantage’ in this space, where we were one of the first states [to legalize]. But you can never get complacent, and we want to continue to be a leader in the legal cannabis market,” he said. “We need to continue to innovate because obviously many other states have caught up with where we are from a basic legalization of commercial and medical perspective. That’s no longer as innovative as it was at the time when we did it.”
The governor also touted how the state has distributed marijuana tax revenue—which has totaled about $2.5 billion since the implementation of legalization—for other efforts such as funding K-12 education.
“It’s just been such a big part of our state’s success,” he said. “I think part of the issue is, of course, more national competition now.” For example, neighboring New Mexico has enacted legalization, meaning residents there no longer need to make a trip to Colorado to buy regulated cannabis products.
“That’s natural. There’s more states that are moving that way,” the governor, who has previously joked about not wanting other states to legalize so their residents patronize Colorado instead, said. “And again, it’s really a matter of how we can continue to be a policy leader in safety regulations, preventing underage use, expedited licensing procedures, tax structures like making companies eligible for enterprise zones.”
Despite increased competition as more states move to legalize, Polis said there are still unique advantages for marijuana entrepreneurs that base their businesses in Colorado, including the relatively low state tax rate of 4.3 percent and the opportunity to take the state equivalent of the federal tax deduction they’re otherwise precluded from doing under 280E.
“We’re very favorable from that perspective as well,” he said.
But in order to fully realize the economic and innovation goals of Colorado’s marijuana industry, the governor said that federal law needs to change, and “we can’t let the perfect be the enemy of the good.” That means supporting incremental steps like passing the SAFER Banking Act to free up financial services for the cannabis market, as well as rescheduling marijuana under the Controlled Substances Act (CSA), as the Drug Enforcement Administration (DEA) is now formally considering as part of an administrative review directed by President Joe Biden last year.
“Do any of these things solve everything related to cannabis? No, of course not. That’s not how policy works,” he said. “I served in Congress for 10 years. You never get the whole loaf on your first bite.”
“Let’s just support these things rather than further divide things in the community seeking out comprehensive legalization—which, of course, is a goal I agree with and I think Congress will ultimately do,” he said. “But you have to get some of these things that we can done first.”
“You bank each step and you go for the next one, rather than say it’s all or nothing and then you’re sitting there forever not getting anything,” Polis continued. “I think most of the community has come around, but a lot of folks you know they want this, they want this—and we all agree on those things. But we’ve got to get what’s right there in front of us: SAFE Banking Act, reclassification, 280E. I mean, let’s get these things done and then we’ll start fighting again tomorrow on the next phase.”
The fight for federal reform could ultimately position Colorado to take a revamped leading role in the cannabis space, the governor said. For example, “we want to be ready” for when the state is able to export cannabis seeds throughout the country and internationally. He also aspires to have Colorado serve as the “the genetic library for the nation.”
“As this becomes more of a national and global industry, our goal in Colorado would really be to be at the center of it,” he said. “Right now it can’t be by its nature of being federally banned. In many ways, the national and international industry—I mean, you quite literally can’t move the product across state lines, so that’s kind of what we’re aspire to do: to take advantage of federal legalization here in Colorado.”
The governor’s budget, meanwhile, also outlines additional ways that the governor hopes to spend $347.5 million in marijuana tax revenue for the 2024-2025 fiscal year. That includes funding for affordable housing, public education,
The proposals notes that marijuana tax revenue “fell in FY 2021-22 by 11.2 percent to $179.2 million and by an additional $29.8 million to $149.4 million in FY 2022-23 as demand fell from its peak, resulting in oversupply and depressed prices.”
However, the state’s economic and revenue forecast project that revenue will “rebound in FY 2023-24 by 10.3 percent to $164.8 million before increasing by an additional 8.4 percent in FY 2024-25 to $178.6 million.”
“The Governor’s FY 2024-25 [marijuana tax fund] budget and legislative agenda is squarely aligned with the intended uses of the Fund and creates financial sustainability during a time of uncertain revenue collections by largely funding one-time priorities,” the budget document says. “Overall, the Governor’s request includes funding $22.6 million in new priorities or the continuation of programs with expiring funding.”
The other “new priorities” that Polis didn’t detail in his “Weed Wonks” interview include a one-time $6 million allocation for the state Department of Health Services (DHS) to provide free therapy sessions to youth, $2.7 million for DHS’s out-of-school youth violence prevention services, $3.5 to create a Hemp Center of Excellence under the agriculture department, $4.1 million for technology to improve seed-to-sale tracking and a recurring $1 million distribution for a substance use disorder housing voucher grant program.
Outside of cannabis, the governor’s budget also includes a $100,000 placeholder for the potential implementation of policy recommendations related to the state’s psychedelics legalization law that’s being rolled out.
Specifically, the dollars are reserved for costs “coming from the Natural Medicine Advisory Board” under the Department of Department of Regulatory Agencies “to support accurate public health approaches regarding use, benefits, harms, and risk reduction for natural medicine and natural medicine product and the content and scope of educational campaigns related to natural medicine.”
“This will include public service announcements, educational materials, and appropriate crisis response materials, and it will further develop and promote training materials for first responders and multi-responders, including law enforcement, emergency medical providers, social services providers, and fire fighters,” it says.
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Meanwhile, an analysis from the state’s nonpartisan Legislative Council Staff (LCS) that was released in August also showed that Colorado generated more tax revenue from marijuana than alcohol or cigarettes during the last fiscal year, with $280 million in cannabis tax dollars going toward a variety of government programs and services.
The U.S. Census Bureau has started keeping tabs on state cannabis sales and tax revenue data, even as the plant continues to be federally prohibited. And a new Census report shows that Colorado is one of five states that have consistently seen cannabis revenue make up at least one percent of all state income over the past two years.
The governor recently applauded Biden after his administration’s top health agency recommended rescheduling marijuana—but he says the initial move must be followed with more action to address cannabis banking, immigration, criminal justice reform and federal enforcement concerns.
He has also called on lawmakers to take steps to allow him to issue mass pardons for people with prior psychedelics convictions after he signed legislation to implement regulations for substances like psilocybin and ayahuasca in May.
He’s further approved legislation that will bolster marijuana-related protections for working professionals in the state—effectively codifying an executive order he issued last year.
Photo courtesy of Brian Shamblen.