It’s the new year, and 2018 will be bringing a number of changes in the ever-shifting cannabis law landscape, both at the federal and state level in Colorado. This article provides an overview of some of the changes to expect, but also recognizes that in the world of cannabis, uncertainty is often the name of the game.
Federal Tax Control
The year 2017 was full of twists and turns. Jeff Sessions, the U.S. Attorney General, and well-established opponent of cannabis legalization, did not take as aggressive of an approach to turn back the tide of cannabis legalization as many in the industry had feared he might. However, he did not back down from his stance that cannabis is harmful to society and that its use should be discouraged. In late November, Sessions indicated that the U.S. Department of Justice (DOJ) had met to discuss changes to enforcement at the federal level, but did not provide any specifics as to what those changes might look like. So, at the top level of law enforcement, we essentially enter 2018 with a sense that change is afoot, but without any real idea as to what DOJ intends to change.
Staying at the federal level, tax reform is a policy topic dominating the headlines. The biggest tax issue for cannabis businesses revolves around Section 280E—an obscure IRS code provision that effectively bars cannabis businesses from taking almost all tax deductions and credits, thereby creating much higher tax bills for cannabis companies than for non-cannabis businesses. A dispensary, for example, could end up with an effective tax rate of up to 70 percent, much higher than similarly situated non-cannabis businesses. In November 2017, Rep. Jared Polis presented an amendment to Section 280E which would allow for deductions for state-compliant cannabis businesses, but his amendment did not pass the House Committee on Rules.
Colorado’s Newest Transitions
In a very recent development, Sen. Cory Gardner of Colorado had initially indicated that he would insert an amendment into the Senate’s Republican-driven tax reform bill, but at the last moment decided against it. However, this does not mean that Section 280E reform is dead in the water. The standalone bills mentioned above are still alive, and there is also a small chance that Section 280E reform could make it into the House version of the Senate’s tax reform bill. But, if you had to bet on it, the odds unfortunately do not look to be in favor of Section 280E reform in the short term.
Turning to Colorado, a number of new, statewide regulations went into effect on Jan. 1. First, those who grow their own cannabis are now capped on the amount of plants they can possess or grow on residential property. Recreational home-growers are now capped to 12 plants unless their locality allows for more. Medical patients and primary caregivers can receive an exemption to grow up to 24 plants upon registration with state and local authorities.
“Based on how many cannabis-related bills and topics are being prepared and worked on, it looks like 2018 is going to be a very interesting year.”
Next, is Colorado’s House Bill 17-1376 (entitled Authorize Marijuana Clinical Research), which also went into effect Jan. 1 as well. This much-needed bill allows for cannabis research and development licenses to be issued, and effectively makes it easier for more in-state research projects to take place.
Apart from legislative bills, the Marijuana Enforcement Division released a laundry list of new compliance rules for licensees that went into effect on Jan. 1. Among the changes are new packaging and labeling requirements for all types of products—flower, concentrates and edibles. Dispensaries have a six-month transition period before they must be in compliance with the updated packaging and labeling changes. The division also enacted more stringent contaminant testing requirements for certain licensees.
These rules were made in an attempt to balance cannabis regulations with public health and safety concerns, such as prevention of use by youth. The division has also been making a greater effort to ensure products with inappropriate contaminants aren’t being sold.
Based on how many cannabis-related bills and topics are being prepared and worked on, it looks like 2018 is going to be a very interesting year.