Lessons Learned from Colorado’s First Year of Marijuana Legalization

More than 17.5 tons—that’s how much recreational marijuana was sold in Colorado in the first year of legalized commercial sales. That’s in addition to the 109,578 pounds of medical marijuana and 4.8 million units of marijuana-infused edible products, such as candy and cookies, which also were sold in the state last year.

In total, Colorado’s Marijuana Enforcement Division reports that the state sold nearly $700 million in medical and recreational marijuana in 2014, on which the state collected $63 million in tax revenue and an additional $13 million in licenses and fees.

In 2012, voters in Colorado and Washington approved ballot initiatives legalizing marijuana for commercial production and sale. When Colorado opened its retail stores Jan. 1, 2014, it became the first jurisdiction in the world where marijuana is regulated from seed to sale. Washington opened its retail stores six months later, and Oregon and Alaska are scheduled to do so in 2016.

Andrew Freedman, Colorado’s director of marijuana coordination, described the difficulty in establishing a regulatory framework for the cultivation and sale of the drug, which remains illegal under federal law.

“There was no regulatory framework to build on,” he said. “The federal government would usually be our regulatory partner, and acting without their assistance continues to be a great challenge. For example, banking regulations for the marijuana industry, regulations on edibles, regulations on acceptable pesticides—they have all been left to the state.”

It also made it extremely difficult to make budget predictions. The state made $44 million in revenue from new taxes on recreational marijuana in 2014, which was short of the forecasted $70 million, forcing the state to scale back proposed funding for some programs.

Freedman acknowledged that the black market continues to operate, especially in early 2014 when the supply of recreational marijuana was low and prices for retail sales rose. Many jurisdictions do not permit medical dispensaries or retail stores for marijuana. Currently, 67 jurisdictions allow medical and retail licensees, 21 permit only medical, and 228 jurisdictions prohibit both. Colorado Springs, the second-largest city in the state, does not permit the sale of recreational marijuana.

Freedman counsels other states that they shouldn’t legalize marijuana for the taxes.

“If you’re in it for the revenue, you are in it for the wrong reason," he said. "You won’t solve large societal problems like education with sin taxes.”

As policymakers in other states watch efforts in Colorado and Washington, Freedman said it is too early to draw many conclusions from the state’s first year of legalized marijuana.

“The only question that can be answered after one year is how well did the mechanics of the regulatory system work," he said. "In my opinion, it worked very well. For a state working on its own to set up a regulatory system from scratch that demands compliance from a $700 million industry, a lot of things could have gone wrong, and they didn’t."

As to the larger questions of whether legalized marijuana has had an effect on public safety, health, prevention of youth drug use and the criminal justice system, Freedman said, “the best you can say after one year is that the sky didn’t fall. The issues are very complex and there just isn’t enough data yet.”

Colorado state Rep. Jonathan Singer, who helped write the legislation that implemented the ballot initiative, agreed with Freedman’s assessment of the first year. He cited a task force put together by the governor as key to the state’s success.

“We got law enforcement, district attorneys, defense attorneys, medical marijuana patients, dispensary owners, social justice advocates and concerned parents to come together to establish recommendations that later became law,” Singer said.

One thing that surprised both Freedman and Singer is the significant market share—45 percent—held by marijuana edibles, such as cookies and brownies. Because these items may be attractive to children, the state issued strict regulations related to packaging, labeling and potency restrictions. The state now requires child-safe packaging for all edibles.

Singer said edibles should be recognizable as marijuana products even without the packaging.

“I should be able to tell the difference between a marijuana cookie and an Oreo just from looking at it,” he said.

Another ongoing problem is the industry’s limited access to banking services. Because the drug remains illegal at the federal level, many banks refuse to do business with the industry. As a result, this multi-million dollar industry deals mostly in cash. To ease the problem, the Colorado state banking commission in December approved a new credit union targeting the marijuana industry; however, it has not yet been approved for depository insurance by the National Credit Union Association and does not yet have an account with the Federal Reserve.

With Alaska and Oregon set to join Colorado and Washington in the retail market in 2016, the number of states with legalized marijuana sales may continue to grow. An initiative will appear on the 2016 ballot in Nevada, and supporters are gathering signatures for similar initiatives in Arizona, California, Maine and Massachusetts. The Vermont legislature will likely also consider legalization legislation.

Singer has advice for his fellow legislators in states with pending ballot measures.

“Get ahead of your electorate,” he said.

While the marijuana initiative was approved by 55 percent of Colorado voters, only two of 100 state lawmakers publicly endorsed it. Singer was one of them. 

“I genuinely believe that if the legislature had gotten ahead of the electorate and passed a bill, we wouldn’t find ourselves dealing with constitutional conundrums that box us in and make it hard to be flexible in terms of responding to challenges,” Singer said.