Amendment 64: Five Years Later, 1017 COBJ, Vol. 46, No. 9 Pg. 34

• Author: A DAMDETSKY, J.

Amendment 64: Five Years Later

Vol. 46, No. 9 [Page 34]

The Colorado Lawyer

October, 2017

CANNABIS LAW

A DAMDETSKY, J.

This article looks at pressing issues the marijuana industry faces today, nearly five years after the passage of Amendment 64.

Colorado Constitutional Amendment 64, the ballot measure that legalized recreational marijuana use for adults, is approaching the fifth anniversary of its passage in November 2012. Marijuana has since become a vital aspect of the business landscape in Colorado, generating $ 1.3 billion in salesin2016¹ and $129 million in tax revenue.² In 2016-17, $40 million in revenue collected from the excise tax will go to Building Excellent Schools Today (BEST), a competitive grant program to help school districts pay for construction or maintenance needs. Revenue from marijuana sales taxes in the past year was allocated to address several needs, including $4.4 million earmarked for grants to help children learn to read, $2.3 million for a grant program to assist with hiring school psychologists and nurses, $900,000 to pay for bullying prevention programs, and another $900,000 for programs designed to prevent students from dropping out of school.³

While sales thrive and the Colorado Department of Revenue's (DOR) coffers continue to grow, the industry remains in flux, constantly having to evolve to balance the needs of the industry, the state, local authorities, and residents, and to demonstrate to the U.S. Department of Justice (DOJ) that Colorado is at the forefront of enforcement to meet the mandates of the 2013 Cole Memo, which serves as the foundation around which Colorado's marijuana laws are framed. In the memo, Deputy Attorney General James M. Cole provided nonbinding guidance to U.S. attorneys about the eight priorities of federal law enforcement for purposes of allocating their limited investigative and prosecutorial resources.⁴

Two significant recent events have been (1) the creation of Permitted Economic Interests in marijuana, which opened the door for out-of-state investors to have minority ownership in marijuana licenses,⁵ and (2) Colorado's win in the first major federal preemption challenge to its marijuana laws, when the U.S. Supreme Court denied a motion by the states of Nebraska and Oklahoma seeking to file a Bill of Complaint. The Court effectively refused to hear the arguments brought by Nebraska and Oklahoma that marijuana was being trafficked into their states because of Colorado's legalization.⁶ However, for every problem resolved, a new one arises.

Now, nearly five years after Amendment 64 was passed, this article looks at some of the most pressing issues the industry currently faces, outside of government action.

Insurance

Many marijuana license holders pay high premiums for insurance policies, but those policies may not provide any coverage at all. The earliest policies were not written with marijuana in mind and contain boilerplate language that negates the purposes of marijuana insurance policies, including exclusions for: bodily injury or property damages caused in whole or in part by marijuana; distribution; conflicting laws; employment-related negligence; and substances illegal under federal law. These policies also limit how much can be reimbursed for "trees, shrubs, plants or lawn" claims at a valuation more reflective of the cost of a household decorative plant than for cash crop units potentially worth thousands of dollars each. Other policies require contractual agreements or indemnity agreements with vendors—contracts that many avoided due to questions of enforceability and legality.

In 2016 the federal courts began to take notice of these exclusions. In Green Earth Wellness Center, LLC v. Atain Specialty Insurance Company,⁷ the U.S. District Court for Colorado addressed a commercial property and casualty policy that purported to provide coverage to "Business Personal Property," including "stock."^[8] The policy defined "stock" as "merchandise held in storage or for sale, raw materials and in-process or finished goods... "⁹When harvested inventory stored on Green Earth Wellness Center's property was damaged, Atain denied coverage. In the resulting breach of contract and bad faith claims, the court denied Atain's motion for summary judgment, noting that a finding of no coverage rendered the policy nothing more than an illusory promise of insurance operating to unjustly enrich Atain.¹⁰ The matter subsequently settled.

Since Atain, the industry has seen more carriers writing policies crafted to meet the industry's needs. This is a vital step toward gaining federal acceptance. However, with limited case law specific to marijuana, and with the industry continuing to innovate at a rapid rate, insurance will continue to remain an issue. For example, many retailers now offer marijuana extracts and oils that are heated by pen-size devices that can be carried in a pocket. These "vaporizer pens" have found a following due to their subtle and discreet design. However, they contain batteries that are capable of reaching extreme temperatures in a matter of seconds, sometimes as high as 700 degrees. Carriers are following these developments and either refusing coverage or creating exclusions specific to die manufacture and sale of these pens.¹¹

Now the industry is beginning to look in the direction of captive markets, which will allow license holders the flexibility to write die coverage that they require as needs develop. However, die captive market is only in its infancy in Colorado and its long-term outlook is unclear.

Community Pushback

The past two years have seen some efforts to scale back the industry. In Denver, the City Council passed Bill 16-0291 in 2016,¹² which capped die number of sales and cultivation licenses within die city and created a once-a-year application and blind lottery process for new licenses to be held only if die number of active licenses falls below the cap levels. For each application process, the city will prohibit new licensees from opening in any of the five neighborhoods most saturated with licenses. Viable locations are also limited; die bill prohibits new cultivation or sales locations within 1,000 square feet of residential zones and requires license holders to form a "Good Neighbor" plan with local community groups. This new process effectively disqualifies many areas, including warehouses entrenched in industrial zones, that sat vacant before legalization.¹³ Denver also revoked a grow license in 2016 because of community complaints of odors.¹⁴ In addition, Denver has denied permits for the Cannabis Cup convention for die first time and is rumored to be considering an end or major changes to the annual 420 Rally.¹⁵

Elsewhere, residents of Pueblo County saw a narrow vote (56% to 44%) on a 2016 ballot question to repeal ordinances that allowed recreational marijuana cultivation and retail sales.¹⁶ Had die ballot passed, existing businesses would have been forced to close. The residents of die City of Pueblo faced and defeated a similar measure." The City Council of Broomfield extended its ban on marijuana-related businesses.¹⁸

At the state level, bipartisan lawmakers decided against authorizing bring-your-own marijuana clubs out of fear of backlash from federal law enforcement.¹⁹ When Denver voters narrowly passed (53% to 47%) Initiated Ordinance 300, die "social marijuana law," which was intended to allow established businesses to permit marijuana consumption on their premises subject to a series of strict requirements, the Colorado DOR immediately issued rules for the liquor enforcement division, stating that no premises with an active liquor license may permit the consumption of marijuana.²⁰

On the federal level, 2016 saw the U.S. Drug Enforcement Administration (DEA) refuse to reschedule marijuana.²¹ The Rohrabacher-Farr Amendment, which prohibits the DOI from FEATURE CANNABIS LAW spending federal funds to interfere with the implementation of state medical marijuana laws...