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Profiting from Colorado Marijuana

Written By Brian Hicks

Posted July 24, 2013

It seems that the city of Colorado Springs—Colorado’s second-largest city—is set to introduce a ban on recreational marijuana stores.

From Reuters, we learn that a vote on Tuesday passed 5-4 to approve of a ban barring any retail marijuana store from opening anywhere within city limits. The outcome wasn’t unexpected; Mayor Steve Bach had previously stated he would use his veto power if the vote had gone the other way.

marijuanaIt’s probably worth bearing in mind that Colorado Springs has a reputation for being highly conservative, with strong Republican and evangelical Christian presence (as well as a large military presence), which is an anomaly in a state that is notoriously progressive and has shifted further to the left over the past few years.

Indeed, it’s this open-minded stance that led Colorado, along with Washington, to become among the first states to legalize recreational marijuana, which came on top of their approvals for the medical use of marijuana. The recent vote will not affect any businesses dealing with medical marijuana, however.

It’s hard to see how this vote represents anything beyond a loss for Colorado Springs. Not only does it make the city an anomaly compared to the state, it also means the city stands to lose as much as $3 million, which CBS reports had been projected as the city’s annual revenue from taxes on retail marijuana sales.

The most surprising part of all this is that Colorado Springs isn’t the only anomaly in a state that has gained a reputation for being open-minded when it comes to marijuana. Some 24 other cities in Colorado also have a ban in place against recreational marijuana sales, per the Huffington Post.

Other cities, like Denver, are weighing the pros and cons of introducing lengthy moratoriums on new marijuana business sales, although they maintain an approval policy for recreational marijuana sales. Denver’s mayor, for example, is against recreational marijuana sales and has suggested a two-year moratorium on any new such shops, as well as a ban on marijuana clubs and public consumption.

The effects of such moratorium would, on paper, be that medical dispensaries turn into the only businesses eligible to apply for and obtain marijuana licenses in order to remain in business. However, it’s also quite likely that such bans or moratoriums would simply accelerate the growth of a black market for marijuana. After all, if the state approves of something, it doesn’t make a lot of sense for individual cities to impose their own positions against it.

Let’s recall that last November, voters in the state of Colorado approved Amendment 64, which makes possible the limited sale, possession, and growing of marijuana for recreational purposes for all adults. Specifically, you can be in possession of up to one ounce of marijuana, you can grow up to six plants at home—with any three flowering at a given time—but you can only use homegrown marijuana for personal use and not for business purposes. And finally, you can gift up to one ounce of marijuana.

Just earlier this month, the state’s Department of Revenue came out with a detailed report exploring the legal framework for licensing, regulating, and selling marijuana across the state of Colorado. The rules cover everything from store operational mandates to labeling requirements, and they are really quite thorough. This November, voters will determine whether or not to levy a 25 percent excise and sales tax on all recreational marijuana sales in order to help fund appropriate regulation.

Invest in Medical Marijuana

Nonetheless, even these thorough measures have some loopholes that have yet to be ironed out. For example, the Denver Post reports that a proposed measure to track recreational marijuana “from seed to sale” isn’t very efficient at this stage because the system can’t begin tracking marijuana until the buds are off the plant.

This obviously raises the question of inefficiency (read: under-reporting). If you can’t track how much was being grown, you can’t very well track how much makes it to the market with any degree of certainty. Different voices in Colorado have weighed in on the issue, but it’s a clear example of the cloudy state of regulation that still exists.

From an investment perspective, it’s at least clear that recreational marijuana is a much more problematic area than the medical sector. So focus on the medical dispensaries and other businesses dealing with medical marijuana. This could include KannaLife Sciences and Biotech Inc., businesses that have framed a 50/50 joint venture to work toward developing pharma products based on cannabis.

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