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Is the Marijuana Excise Tax Imposed by Your County Legal Under Colorado Law?

In order to be legal, the excise tax must pass two tests. First, C.R.S. 29-2-114(2)(a) allows for a local 5% excise tax on the first sale or transfer of unprocessed retail marijuana by a retail marijuana cultivation facility. The rate is determined by the average market rate (listed on the MED website). If the rate is higher than 5% (based on the current average market rate) then it is not legal.


In addition, the excise tax must be an initiative placed on the local ballot and passed by the local voters. If the tax was not approved by voters, then it is not legal.


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C.R.S. 29-2-114 (2) (a) "In addition to any sales tax imposed pursuant to section 29-2-102 and articles 26 and 28.8 of title 39, and in addition to the excise tax imposed pursuant to article 28.8 of title 39, each municipality in the state is authorized to levy, collect, and enforce a municipal excise tax on the first sale or transfer of unprocessed retail marijuana by a retail marijuana cultivation facility at a rate of up to five percent of the average market rate, as determined by the department of revenue pursuant to section 39-28.8-101 (1), of the unprocessed retail marijuana if the transaction is between affiliated retail marijuana business licensees and at a rate of up to five percent of the contract price, as defined in section 39-28.8-101 (2.5), for unprocessed retail marijuana if the transaction is between unaffiliated retail marijuana business licensees; except that a municipality which, before November 1, 2018, obtained the approval of the eligible electors of the municipality as required by subsection (2)(b) of this section to levy only a municipal excise tax on the first sale or transfer of unprocessed retail marijuana by a retail marijuana cultivation facility that is calculated based upon the average market rate of unprocessed retail marijuana and in which the eligible electors thereafter rejected a proposed amendment to allow the tax to be calculated based on the contract price for transactions between unaffiliated retail marijuana businesses may continue to collect the tax on such transactions based on an average market rate calculation until December 31, 2020. The tax shall be imposed at the time when the retail marijuana cultivation facility first sells or transfers unprocessed retail marijuana from the retail marijuana cultivation facility to a retail marijuana product manufacturing facility, a retail marijuana store, or another retail marijuana cultivation facility.

(b) No excise tax shall be levied pursuant to the provisions of paragraph (a) of this subsection (2) until the proposal has been referred to and approved by the eligible electors of the municipality in accordance with the provisions of article 10 of title 31, C.R.S. Any proposal for the levy of an excise tax in accordance with paragraph (a) of this subsection (2) may be submitted to the eligible electors of the municipality on the date of the state general election, on the first Tuesday in November of an odd-numbered year, or on the date of a municipal biennial election. Any election on the proposal shall be conducted by the clerk of the municipality in accordance with the “Colorado Municipal Election Code of 1965”, article 10 of title 31, C.R.S.


What is a qualified elector? Colo. Rev. Stat. § 31-1-101 (7) “Qualified elector” means a person who is qualified under the provisions of the “Colorado Municipal Election Code of 1965” to register to vote in elections of the municipality or who, with respect to a proposed city or town or the creation of an improvement district, is qualified to register to vote in the territory involved in the proposed incorporation or district.


Colo. Rev. Stat. § 39-28.8-101 (1.5) “Average market rate” means the average price, as determined by the department on a quarterly basis, of all unprocessed retail marijuana that is sold or transferred from retail marijuana cultivation facilities in the state to retail marijuana product manufacturing facilities or retail marijuana stores, less taxes paid on the sales or transfers. An “average market rate” may be based on the purchaser or transferee of unprocessed retail marijuana or on the nature of the unprocessed retail marijuana that is sold or transferred. The “average market rate” must include one or more rates that cover unprocessed marijuana that is allocated to extractions, and the initial rates for these product types must be lower than the rate for unprocessed marijuana that is allocated for direct sale to consumers.


Thorburn Law Group is a full service Colorado cannabis law firm, and represents the cannabis industry in most aspects of the law. We offer a full suite of legal services to entities of all types and sizes that work within or alongside the regulated cannabis industry, and have over 30 years experience in what we do. We have working relationships with many state and federal representatives. We have taken our vast knowledge and have applied it within the cannabis sphere for the past 10 years, helping to pave the way for the industry.