Why is Colorado risking hundreds of millions to protect its marijuana industry?

Colorado's state legislature is considering an unusual plan to defend the state's marijuana industry from a federal crackdown under the Trump administration.

The bill would allow growers and sellers to reclassify their recreational marijuana as medical “based on a business need due to a change in local, state, or federal law or enforcement policy.” The strategy is meant to keep marijuana businesses afloat if the federal government comes after them, even if it means the state losing hundreds of millions of dollars in taxes.

The bill represents a shift in how states might respond to what marijuana advocates say are an over-simplification of cannabis policy by the Trump administration. The Trump administration has indicated it is OK with medical marijuana, but not with the recreational use of the drug. Yet, most marijuana businesses cater to both the recreational and medical markets, meaning a crackdown would wipe out half of a store’s inventory while leaving the other half intact. 

If federal authorities start seizing recreational pot, Colorado's recreational marijuana entrepreneurs "need to be able to convert that product into the medical side so they can sell it," state Sen. Tim Neville (R), who represents suburban Denver, told the Associated Press. 

"If there is a change in federal law, then I think all of our businesses want to stay in business somehow. They've made major investments," Mr. Neville said.

The bill, which passed 4-1 last week in a committee in the Republican Senate, would allow Colorado’s 500 or so licensed recreational marijuana growers to instantly reclassify their pot. The measure says licensed growers could immediately become medical licensees “based on a business need due to a change in local, state or federal law or enforcement policy.”

According to the latest available data, the state had in June about 827,000 marijuana plants growing in the retail system. More than half were for the recreational market. The state industry also employs 25,000 people directly. Of these jobs, 18,000 were generated in 2015, according to a study conducted by the economic consulting firm Marijuana Policy Group.

The legislation being considered comes as the Trump administration threatens to crack down on the nascent marijuana industry in Colorado and the seven other states where its recreational use is legal. Ever since Jeff Sessions became US attorney general, marijuana advocates have worried the agency he oversees would come after these eight states’ industries. These fears grew in February, when White House Press Secretary Sean Spicer warned of “greater enforcement” of medical marijuana.

In a press briefing, Mr. Spicer suggested that President Trump views medical marijuana in a different light.

“That’s very different than recreational use, which is something the Department of Justice will be further looking into,” said Spicer.  

A few days later, Mr. Sessions indicated to a conference of attorneys general that he’d do away with the Obama administration’s hands-off strategy on state laws, in place since 2013 under a four-page directive known as the Cole memo, according to Bloomberg.

Although the Obama administration allowed states to determine their own marijuana laws, the drug remains classified as a Schedule 1 drug, alongside heroin. This means the federal government does not recognize it as having valid medicinal applications, and considers it as having a high potential for abuse.

Marijuana policy experts have said the Trump administration’s attitudes about marijuana over-simplify states’ regulatory frameworks.

“Mr. Spicer’s comments really signaled a deep misunderstanding within the administration about how marijuana policy is regulated and implemented at the state level,” John Hudak, a senior fellow at Brookings Institution, told Bloomberg. “There are dramatic regulatory differences from state to state. The comments from the podium were overly simplistic.”

States where both recreational and medical marijuana are legal have parallel regulatory frameworks, according to Bloomberg. While businesses must acquire separate licenses for the two uses, many have both.

The Colorado bill aims to prevent dispensaries from having a portion of their inventory declared illegal. But lawmakers opposed to it warn of the effects it could have on the state’s tax revenues.

"It's a big deal for our taxation system because this money has been coming in and has been set aside for this, that and the other," said Sen. Lois Court, a Denver Democrat who voted against the bill.

Colorado taxes recreational marijuana much more than medical marijuana — 17.9 percent compared to 2.9 percent – so businesses’ reclassification would cost the state more than $100 million a year. This loss would specifically affect schools, which depend on $40 million a year in these taxes for a construction fund, as well police training and public education campaigns related to marijuana use.

But Colorado isn’t the only state pursuing legislation of this order. Oregon's legislature is considering a bill that hides the names and other personal information of cannabis buyers, a practice that is already banned or discouraged in Colorado, Alaska, and Washington state. Other states such as California are considering proposals that would prohibit local and state law enforcement from cooperating with federal authorities on investigations into cannabis operations that are legal in their jurisdictions. 

This report contains material from the Associated Press.