A bill will be introduced in the Colorado legislature next session to limit the number of plants that marijuana caregivers can grow for their patients and require caregivers to go through a more stringent approval process. (Joe Amon, The Denver Post)

Opinion: Big changes coming in Colorado’s marijuana market

Look around you. These are the good old days of marijuana in Colorado.

Things are about to change.

Prices for pot assuredly will fall, more pot will flood the market, and legislative changes are in the offing for how physicians can prescribe pot for severe pain.

Voters could eventually be asked to add a special tax onto medical marijuana, and there is even talk of repealing Amendment 20 to discontinue the medical marijuana model altogether, lumping all pot sales into the retail market.

“It is fluid. Everyone knew this was going to happen,” said University of Denver law professor Sam Kamin, speaking about the evolution of legal pot in Colorado. “This is the first-of-its-kind regulation. We knew we weren’t going to get everything right the first time.”

Clearly, big problems exist. Whether changes will come from market forces or from the legislature is yet to be determined. But one thing is certain: The state’s caregiver model invites fraud.

Now, a caregiver may grow up to six plants for up to five patients, or 30 total. But they can request a waiver to grow even more. Some are growing hundreds of plants.

As of May, the state had registered about 5,000 caregivers. You do the math. Officials believe because of lax oversight, excess pot is flowing into the black market and likely across state lines.

A bill will be introduced in the legislature next session to limit the number of plants that marijuana caregivers can grow for their patients and require caregivers to go through a more stringent approval process with state health officials.

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According to a July report by the Department of Revenue, about 53 tons of marijuana is supplied in Colorado outside the retail and medical marijuana stores — likely coming from the caregiver loophole or through fraudulent abuses of the medical marijuana registry.

Of the 116,287 people currently registered, 93 percent claim they need pot for “severe pain.”

Surely some of those cases are justified, but many are likely bogus. There are too many anecdotes of abuses, such as students feigning back pain to get their red cards or duping doctors into approving marijuana.

Thankfully, the state is beginning to crack down on doctors who have given out questionable medical marijuana recommendations.

Between 2011 and 2013, the Colorado Department of Health and Environment hadn’t referred any medical marijuana physicians to the Colorado Medical Board for investigation in the prior two years. Since then, the department has referred 10 doctors to the medical board for suspected abuse.

Dr. Larry Wolk, director of the CDPHE, said the state now has better scrutiny of physicians, flagging those with abnormally high numbers of recommendations or sparse documentation.

“That is really who we look at as the potential for fraud, rather than the patients,” Wolk said. “Whether a patient has that condition or not, it is up to the physician to document.”

Colorado’s broad allowances for who can get red cards has provided other states with a lesson in how to write their medical marijuana laws.

Massachusetts approved medical marijuana in 2012 for “debilitating medical conditions.” Like Colorado’s, the law lists specific afflictions such as cancer and HIV. But Massachusetts defines “debilitating” as something that “substantially limits a patient’s major life activities.”

New York’s Compassionate Care Act that was recently signed into law allows only marijuana in a non-smokable form for patients with “serious ailments” as recognized on a predefined but flexible list of conditions.

Colorado’s red-card rules allow patients to buy 2 ounces of medical pot at a time. Retail marijuana laws allow 1 ounce, and the taxes are much higher.

In Denver, for example, a red-card holder pays only 7.62 percent in sales taxes, compared with the retail buyer, who pays a total tax rate of 21.12 percent. That includes state and local marijuana taxes and standard sales tax.

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The state concluded in its July report that high taxes and fewer stores are keeping Colorado medical-marijuana consumers from switching to recreational cannabis, which will eventually impact state revenues.

Overall, through September 2014, the state has generated $52.4 million from taxes, licenses and fees on both recreational and medical marijuana.

Amendment 20, which provided the constitutional framework for medical pot, doesn’t say anything about sales taxes. That is up to the legislature. A moral question, however, exists on whether something considered medicine should be excessively taxed.

“Practically speaking, the only reason you would tax medical marijuana is because you want it to be in the same competitive space as recreational marijuana,” said Rep. Dan Pabon, D-Denver, who is not sure if there is support in the legislature for increasing taxes on medical pot.

Tax harmonization

The health department’s Wolk predicts a “harmonization” between medical and retail — aligning tax rates, rules, quantities and age restrictions. But raising taxes on medical pot, however justified, will spark an ugly fight. The same will occur if the government puts more regulations onto caregivers.

Imagine people with heart-breaking illnesses pleading to lawmakers for tax relief and decrying limitations on their caregivers who have served them for more than a decade.

Politically, it could be difficult.

Boulder attorney Jeff Gard predicts everything will change over the next few years as retail continues to grow in popularity and medical marijuana use diminishes.

The state’s rule that required vertical integration — meaning sellers must grow most of their own — was lifted on Oct. 1. Gard believes that will lead to more growing operations and eventually more pot.

“The amount of recreational marijuana that will come on the market will be two to three times what it is now,” Gard said.

That will undoubtedly lead to price drops, which could affect the competition between medical and retail. Cheaper marijuana also could be a death knell to the black market.

To see the future of marijuana cultivation, one needs only look south to Pueblo. The county south of Colorado Springs is destined to become the leading growing county, allowing warehouses, greenhouses and farms with pot plants in the ground.

Already, the county has approved more than 400,000 square feet in medical marijuana grows and 965,673 square feet in retail grows.

“It is a huge economic boon,” said Joan Armstrong, Pueblo County planning director. “They are hiring local engineers, contractors, regional builders.”

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The issues in Pueblo now are about where the operations are getting their water. The federal prohibition against marijuana means water from federal facilities such as Lake Pueblo is against the law.

The commissioners have worked out arrangements to commingle water from other sources, and growers have been trucking in water.

“Lion’s share”

Every day, more people are turning to Pueblo for grow operations, said Pueblo County Commissioner Sal Pace — who speculates that eventually the county will have the “lion’s share of the state’s grow facilities.”

The amount of pot coming onto the market will eventually lead to a market correction, he speculates.

“Some folks are predicting that it will happen next year,” Pace said. “I talked to someone recently who said there are so many greenhouses that won’t be ready for next spring and summer. The correction won’t be next fall or next year.”

Who will survive? Who will fail? What will a market correction mean to the black market, to tax revenues, to federal scrutiny?

Will Republicans now in charge of the state Senate embrace pot revenue or push for tighter controls or higher taxes?

One thing is for sure: Colorado’s marijuana landscape is anything but stable. Remember these days of the first year of marijuana legalization, because much of it will soon change.

E-mail Jeremy Meyer at jpmeyer@denverpost.com. Follow him on Twitter: @JPMeyerDPost

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This story was first published on DenverPost.com