Colorado, Washington State Vote to Tax and Regulate Recreational Marijuana for Adults

Commentary

Colorado, Washington State Vote to Tax and Regulate Recreational Marijuana for Adults

Subsection of Annual Privatization Report 2013: Criminal Justice and Corrections

Harris Kenny
Andrew Livingston

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Disclosure: Harris Kenny is currently a member of the bidding team that won the Request for Proposals (RFP) to assist the Washington State Liquor Control Board in implementing Initiative 502. He also served on the Local Authority and Control Working Group of the Amendment 64 Task Force in Colorado.

1. Introduction

On November 6, 2012 voters in Colorado and Washington State passed historic ballot measures to tax and regulate marijuana, also known as cannabis. Both measures specifically legalize possession and recreational use of marijuana for adults aged 21 and older at the state level. At the federal level, marijuana is categorized as a Schedule 1 drug by the Drug Enforcement Administration (DEA) under the Controlled Substances Act, meaning the DEA claims it has high potential for abuse and no currently accepted medical use.

The recreational component of these measures arguably signals a tipping point in American drug policy that goes beyond the legalization of medical marijuana in 18 states and the District of Columbia. Given the billions of dollars spent every year enforcing marijuana prohibition, state-level legalization is expected to have a disruptive impact on criminal justice and public safety policy.

Continued federal prohibition of marijuana looms large over reform efforts. Several proposed pieces of congressional legislation would resolve the conflict between federal and state laws. That said, the uncertainty of federal enforcement is not stopping state and local policymakers from moving forward with implementation. Colorado and Washington State must address a number of tax and regulatory issues to formalize marijuana markets.

2. Colorado Amendment 64

According to the Secretary of State’s Office, Amendment 64 (A64) is:

An amendment to the Colorado constitution concerning marijuana, and, in connection therewith, providing for the regulation of marijuana; permitting a person twenty-one years of age or older to consume or possess limited amounts of marijuana; providing for the licensing of cultivation facilities, product manufacturing facilities, testing facilities, and retail stores; permitting local governments to regulate or prohibit such facilities; requiring the general assembly to enact an excise tax to be levied upon wholesale sales of marijuana; requiring that the first $40 million in revenue raised annually by such tax be credited to the public school capital construction assistance fund; and requiring the general assembly to enact legislation governing the cultivation, processing, and sale of industrial hemp.1

Colorado voters passed A64, or The Regulate Marijuana Like Alcohol Act of 2012, into law by a ten-point margin (see Table 1 below).

Table 1. Colorado Amendment 64 (2012) Election Results

Vote Total Votes Percent
Yes 1,383,139 55.3%
No 1,116,894 44.7%
Total 2,500,033 100.0%

Source: Colorado Secretary of State’s Office, 2012 Statewide General Election Results, http://results.enr.clarityelections.com/CO/43032/114663/en/summary.html (accessed April 14, 2013).

On Monday December 10, 2012 Colorado Governor John Hickenlooper made an “official declaration of the vote,” thereby certifying A64, and announced the formation of the A64 Implementation Task Force to consider and resolve a number of policy, legal and procedural issues involving various interests and stakeholders to implement the new constitutional amendment.2 The 24-member task force created four working groups in the following areas:

  • Consumer Safety/Social Issues;
  • Criminal Law Issues;
  • Local Authority and Control;
  • Regulatory Framework; and
  • Tax/Funding and Civil Issues.

As of press time the Task Force is still compiling its final report of nonbinding recommendations that will be passed on to the governor’s office, state legislature, state regulators (mainly the Department of Revenue, DOR) and local governments. This spring an omnibus bill is expected to emerge from the state legislature that will likely include many of the Task Force’s recommendations. Principal among them is the legislature’s duty to set a tax rate that will be sent to voters in the fall for approval (in compliance with the Taxpayer’s Bill of Rights, TABOR, section of the Colorado Constitution.) Below is a timeline of major deadlines included in A64:

  • By July 1, 2013 the DOR is required to adopt regulations concerning a variety of statewide concerns, such as licensing and security requirements for marijuana establishments, labeling requirements for marijuana products, and so on.
  • By October 1, 2013 the DOR is required to start accepting applications, and localities are required to identify the appropriate entity responsible for receiving applications either from businesses directly or through the DOR.
  • By January 1, 2014 the DOR is required to begin issuing licenses.

In case the state fails to fulfill its regulatory duties, localities would presume the authority to issue licenses sufficient to enable the operation of marijuana establishments in 2014.

Proponents of A64 tout several benefits that will be realized in the years ahead. According to a study by Christopher Stiffler with the Colorado Center on Law and Policy, taxing and regulating marijuana in Colorado will yield $12 million in annualized savings from reduced criminal enforcement, which in the long run is expected to increase to $40 million. In addition, Stiffler estimates that A64 will generate $48 million in annualized excise and sales tax revenue. This combined $60 million in savings and additional revenue could double by 2017. Proponents tout economic development from related industries such as product packaging, testing laboratories, cultivation equipment manufacturers and increased construction. Proponents also believe drug policy reform, such as recreational marijuana legalization, may in fact attract entrepreneurs and young people from other states to move to Colorado.

Implementation is not without its challenges. Opponents of A64 remain engaged during implementation, particularly within the Consumer Safety/Social Issues Working Group of the A64 Task Force. Their concerns center on public health, so additional measures are being considered that will address the potential impact on children, motorists and others. Opponents also cite the specter of federal intervention, which legitimately threatens the existing medical marijuana industry and the forthcoming recreational marijuana industry.

Many of these implementation challenges will be resolved in the months ahead. On March 7, 2013 the Senate President and Speaker of the House announced the creation of a 10-member Joint Select Committee on the Implementation of Amendment 64 Task Force Recommendations. The Joint Select Committee’s primary job is to evaluate the work of the Task Force, solicit public feedback regarding its recommendations and refer legislation to the legislature for consideration.

3. Washington Initiative 502

According to the Secretary of State’s Office, through Initiative 502 (I502):

The people intend to stop treating adult marijuana use as a crime and try a new approach that:

  1. Allows law enforcement resources to be focused on violent and property crimes;
  2. Generates new state and local tax revenue for education, health care, research, and substance abuse prevention; and
  3. Takes marijuana out of the hands of illegal drug organizations and brings it under a tightly regulated, state-licensed system similar to that for controlling hard alcohol.

This measure authorizes the state liquor control board to regulate and tax marijuana for persons twenty-one years of age and older, and adds a new threshold for driving under the influence of marijuana.

Washington State voters passed I502 into law by a roughly ten-point margin (see Table 2 below).

Table 2. Washington State Initiative 502 (2012) Election Results

Vote Total Votes Percent
Yes 1,724,209 55.7%
No 1,371,235 44.3%
Total 3,095,444 100.0%

Source: Washington State Secretary of State’s Office, November 6, 2012 General Election Results: Initiative Measure No. 502, http://vote.wa.gov/results/20121106/Initiative-Measure-No-502-Concerns-marijuana.html(accessed April 14, 2013).

On January 9, 2013 the Washington State Liquor Control Board (WSLCB) announced a distinctly different implementation strategy from Colorado. Instead of forming a multi-stakeholder task force, Washington has issued a Request for Proposals (RFP) for technical consultation on the implementation of I502. The RFP seeks consulting services in four categories:

  1. Product and Industry Knowledge;
  2. Product Quality Standards and Testing;
  3. Product Usage and Consumption Validation; and
  4. Product Regulation.3

The RFP contract should be awarded in late March 2013. Beyond the RFP, WSLCB officials have engaged the public and individuals with relevant experience in other states. WSLCB held a series of public forum events throughout the state to discuss implementation and provide an outlet for public testimony on important issues the WSLCB should consider. Meanwhile WSLCB Comptroller Mike Steenhout has traveled to California and Colorado to meet with stakeholders, business owners, testing facilities and regulators to learn from their experience. Below is a comprehensive timeline released by the WSLCB that covers implementation concerns through December 1, 2013:

Table 3. Tentative Washington State Initiative 502 Implementation Timeline

Date Milestone
Early-December 2012 Rulemaking process begins with the filing of the CR101 for the Producer License.
Early-January 2013 Request for Proposals (RFP) for technical consultation issued. An RFP is a competitive process in which experts may bid their services to the WSLCB.
Mid-January 2013 Request for Proposals for Marijuana Consultant Issued.
Late-January 2013 The WSLCB begins holding forums in regions around Washington to allow public comment on aspects of the law.
Early-March 2013 CR101 filed for both the Processor and Retailer licenses allowing the public to give input on how the requirements/language for those licenses should look.
Mid-April 2013 CR102 filed for the Producer License. The CR102 allows the WSLCB to seek public comment on its initial draft rule language.
Late-May 2013 Public hearing on rules for the Producer License.
Early-June 2013 CR103 filed for Producers License. The CR103 is when the Board officially adopts the proposed rules. They will become effective 31 days later.
Early-June 2013 Begin accepting Producer License applications. CR102 filed for both the Processor and Retailer licenses. This allows the WSLCB to seek public comment on draft rule language developed with input from the public during the initial comment period.
Late-July 2013 Public hearings for Processor and Retailer licenses draft rule language, CR103 filed for Processor and Retailer licenses. The CR103 is when the Board officially adopts the rules. They will become effective 31 days later.
Early-August 2013 Rules relating to the Producer and Retailer licenses completed.
Mid-August 2013 WSLCB begins issuing producer licenses to qualified applicants.
Early-September 2013 WSLCB begins accepting Processor License applications.
Mid-September 2013 WSLCB begins accepting Retailer License applications.
Early-November 2013 WSLCB begins issuing Processor Licenses to qualified applicants.
Mid-November 2013 WSLCB begins issuing Retailer Licenses to qualified applicants with an effective date of Dec. 1, 2013.
December 1, 2013 Retailer licenses become effective.

Source: Washington State Liquor Control Board, Tentative I-502 Implementation Timeline, January 9, 2013, http://www.liq.wa.gov/publications/Marijuana/I-502/I-502-Timeline-1-15-13.pdf (accessed April 14, 2013).

4. Conclusion

It will be most interesting to observe the differences between Colorado’s implementation recommendations, which will be made by a politically appointed task force, and those issued by Washington State’s procured consultants. That said, both Colorado and Washington State have coordinated-and will continue to coordinate-their implementation efforts in the weeks, months and years ahead.

One of the largest shared fears of policymakers in both states is whether or not they will be effective in formalizing the marijuana market. The existing black market poses just as serious a threat as the federal government, albeit in a different way. Excessive taxation, regulation and/or backwards-looking law enforcement that fails to adapt its methods may result in retaining some civil liberty protections (for possession, use, transportation, etc.) while neutralizing the commercial development component that is essential to undermining the black market in the short and long run.

Looking beyond Colorado and Washington State, Rob Kampia, executive director of the Marijuana Policy Project (MPP), which was the primary backer of A64, recently explained in an article published by The Huffington Post that MPP is pursuing efforts to legalize, tax and regulate recreational marijuana in seven states from 2013-2016:4

  1. Alaska;
  2. Rhode Island;
  3. Maine;
  4. Oregon;
  5. California;
  6. Massachusetts; and
  7. Nevada

Kampia’s Huffington Post article concludes:

The themes here are pretty clear.

First, the next states to end marijuana prohibition will be in New England and the West. Second, everything is trending in our direction, and most people now agree that marijuana will eventually be legalized nationwide.

Third, the biggest day in the history of the marijuana-policy-reform movement will be November 8, 2016. After that day, just 46 months from now, it will be almost inevitable that Congress will change federal law to allow states to determine their own marijuana policies without federal interference…

– Rob Kampia, executive director of the Marijuana Policy Project5

Kampia’s confidence is backed by increasingly significant victories over the past couple of decades, but it is difficult to predict exactly what will come next. Marijuana policy reform is one of the most important issues in criminal justice and public safety from 2012 into 2013, and it will remain so for the foreseeable future.

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Endnotes

1 “Results for Proposed Initiative #30,” Ballot Title Setting Board 2011-12, Colorado Secretary of State’s Office. http://www.sos.state.co.us/pubs/elections/Initiatives/titleBoard/results/2011-2012/30Results.html

2 “Gov. Hickenlooper signs Amendment 64 proclamation, creates task force to recommend needed legislative actions,” Office of Gov. John Hickenlooper, December 10, 2012. http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251842728832&ssbinary=true

3 “I-502 Implementation: Request for Proposals (RFP) at a Glance,” Washington State Liquor Control Board. http://liq.wa.gov/marijuana/rfp-at-a-glance

4 Rob Kampia, “What Are the Next States to Legalize Marijuana?” The Huffington Post, December 31, 2012. http://www.huffingtonpost.com/rob-kampia/state-marijuana-legalization_b_2377847.html

5 Ibid.