March 2, 2016
Are cannabis startups legal in Colorado?
One of four U.S. states, Colorado allows the sale and possession of marijuana for non-medical uses
Note: The CannaVator accelerator, which includes a 10-week online and in-person program, is accepting applications until August 15, 2016 for its Fall 2016 cohort. More details about the program and how to apply here.
Though cannabis remains illegal as far as the U.S. federal government is concerned, laws regulating the drug on state and municipal levels have been rapidly evolving over the past several years.
Dozens of states have legalized cannabis for limited (typically medicinal) use cases. A few have decriminalized it. And four states (Colorado, Washington, Oregon, and Alaska) have legalized it for recreational use. All told, 39 states have legalized cannabis in some form, according to a recent report by Ackrell Capital.
Even the federal government has taken a somewhat less restrictive approach. Though committed to enforcing the Controlled Substances Act (CSA, which makes marijuana illegal in the U.S.), the Department of Justice in August 2013 issued the oft-cited "Cole Memo," effectively admitting that it wouldn't intervene with state rules except in specific cases, for example the selling of drugs to minors, the funneling of revenue to gangs and cartels, or in cases where substances cross into border states with stricter rules.
Given all the complexity in U.S. law governing cannabis, things can be a bit confusing for your average smoker, not to mention for entrepreneurs hoping to capitalize on the emerging cannabis market.
The purpose of this series is to help demystify the legality of starting and growing a cannabis startup in various U.S. states. This segment is on Colorado.
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The law: In November 2012, Colorado (along with Washington) became the first state in the country to legalize the sale and possesion of marijuana for non-medical uses. In spite of the broader state law, cities, counties, schools, universities, and employers within the state may set their own rules.
Buying: As with alcohol, you must be at least 21 years old to purchase marijuana in Colorado. You can only buy from licensed retail stores and you may possess up to one ounce of marijuana at a time.
Using: It is illegal to use marijuana in public in Colorado, including federal lands. You can use it on private property (though property owners can prohibit possession and use) and you can use it in hotel rooms where use is specifically designated. Additionally, employers can still test for marijuana and bar its use.
Business licenses: In Colorado, only licensed retailers can sell marijuana products. The state offers several different kinds of business licenses depending on the type of venture an individual is hoping to operate:
Medical marijuana
- Medical Marijuana Center (MMC): Facility where registered medical marijuana patients may purchase medical marijuana and infused products.
- Medical Marijuana Infused Product Manufacturer (MMIP): Facility which produces infused products, including edibles, concentrates (hash), tinctures, or beverages. MMIPs must wholesale their products to MMCs.
- Medical Marijuana Optional Premises Cultivation: Facilities for growing, harvesting, and processing raw medical marijuana products. They must be associated either with an MMC or MMIP.
Retail marijuana
- Retail Marijuana Store: Facility where individuals may purchase marijuana. Colorado residents can purchase up to one ounce, while non-residents may purchase up to one-quarter ounce.
- Retail Marijuana Product Manufacturing: License for manufacturing and preparing retail marijuana products and concentrates. Must wholesale to above Retail Marijuana Stores.
- Retail Marijuana Cultivation: License for cultivating and harvesting retail marijuana. Must either be associated with above Product Manufacturer or sale to cultivations, stores, or product manufacturers.
- Retail Marijuana Testing Facility: Facility for testing and researching retail marijuana.
In order to be eligible for a business license, an individual must be 21 years old and a resident of Colorado. They also can't have any "controlled substance" felony convictions or a criminal history.
Additionally, each of the above licenses requires an application fee ($300-$14,000) and a license fee ($2,200-$11,000); fees range considerably depending on the license type and size of facility. All facilities must also pay renewal fees to regularly renew their licenses.
As of June 1, 2016, there are 2,738 licensed marijuana businesses in Colorado:
Medical marijuana: 1,551
- Centers: 530
- Cultivations: 788
- Infused Product Manufacturers: 233
Retail marijuana: 1,187
- Stores: 432
- Cultivations: 554
- Product Manufacturers: 187
- Testing Facilities: 14
Examples of cannabis companies in Colorado
While most of the companies in Colorado's cannabis economy fit into the above categories as either dispensaries or cultivators, there are several other companies taking the approach of serving the growing cannabis industry. Here are a couple examples:
- Based: Denver, CO
- What it is: Provider of compliant packaging solutions for the legal cannabis industry
- Funding: N/A
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- Based: Denver, CO
- What it is: Provider of enterprise management software for the cannabis industry
- Funding: Last December, the company closed $8 million in Series B financing from Roger McNamee and Tao Capital Partners
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- Based: Denver, CO
- What it is: Producer of branded vaporizers, cartridges, and smoking accessories
- Funding: Completely owner-funded.
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- Based: Boulder, CO
- What it is: Online marketplace connecting cultivators, infused product manufacturers, and dispensaries
- Funding: Last October, the company completed a $1 million seed-stage round of funding led by TL Partners, Poseidon Asset Management, and Anslinger Capital
What if...
I emailed cannabis companies in Colorado to ask them a simple question: How would your business change if cannabis were made legal nationwide? Here are a few responses I received.
Garett Fortune, CEO of FunkSac:
"The initial change would be hyper growth to support the increased market, which I think we are in a great position for. We have always been under the model of 'prepare for national and international growth' and we have already put many measures in place. We have great people, products and process that can scale with the growth. The next challenge would be capitalizing correctly for that growth and to stay ahead of the market or be ready to be acquired by a large name brand that will want to enter with legalization. Legalization would bring a lot of options to the table for banking and funding as well as the big players that have been dipping their toes in the water and watching the market."
Ralph Morgan, CEO at O.penVAPE:
"National legalization is the goal. All facets of the industry would be profoundly affected, with patients and consumers enjoying increased, easier access to cannabis. This is the paramount purpose of successful expansion and something O.penVAPE supports wholeheartedly. On top of this, legalization would allow for transport across state lines, efficiencies in raw materials and increased pressure on the DEA to remove cannabis as a Schedule 1 drug on the Controlled Substances Act.
"We promote wellness and healthy lifestyles for both medicinal and recreational purposes and are proud to be the most successful and widely distributed consumer products brand in the legal cannabis market. We currently license our IP to partners in nine states and Jamaica, and with nationwide legalization, would expect to bring on new licensees in all 50 states. In the meantime, we will continue to drive vaping innovation, marketing, research and industry advocacy."
Aeron Sullivan, founder and executive chairman, Tradiv:
"We would be delighted if cannabis was legal nationally. In fact, federal legalization is something we fully support as a company. We would, of course, scale and our business would grow, but it’s not the material gain that would excite me most. It would be the shift away from the violence that has surrounded cannabis during its prohibition. It would be the access for those with cannabis-treatable medical conditions whose lives are being transformed by this new medicine. And, it would be the responsible, recreational adult usage that would no longer need to be done in hiding, while reducing access to the product for those who are too young to experiment.
"The Tradiv platform is in a position to foster relationships between cultivators, manufactures, and retailers, facilitate their transactions, and to ensure healthy, quality cannabis products are available to consumers and patients alike. But, we would also continue to be there to help the community through our environmental efforts, striving to ensure new wealth generation from the cannabis industry makes it to the right people, and ultimately working toward global legalization."
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