A bill that opens the door for out-of-state investors and private equity firms to wade into Colorado’s heavily regulated marijuana business waters passed its first lawmaking hurdle Monday.
The Colorado House Finance Committee unanimously approved House Bill 1090, titled “Publicly Traded Marijuana Companies” with a handful of amendments, referring it to the Senate Appropriations Committee.
The law would repeal a restriction limiting out-of-state owners with a stake in a local marijuana businesses to 15 individuals (a term that can include corporations), would do away with the requirement that all “passive” owners of marijuana businesses who do not make decisions about the businesses go through initial background checks and allow publicly traded entities to hold marijuana licenses in the state.
It is a beefed-up version of a law that passed through the Colorado Capitol in 2018 only to be vetoed by Gov. John Hickenlooper in June, after the state’s legislative session had ended. This time, sponsors have the full support of freshly minted Gov. Jared Polis.
“This year, when we introduced a similar bill we got engagement from the executive branch we hadn’t seen before,” Rep. Matt Gray, D-Broomfield, one of the bill’s co-sponsors said during testimony Monday. “The governor himself came to us and said, ‘I like what you’re doing but let’s do it a little bit more.’ ”
While the first version of the bill focused largely on allowing pot businesses to become publicly traded, an updated version now in the hands of legislators also opens up avenues for accessing private equity, Gray said.
Another key difference in the legislation compared to its 2018 counterpart is that it sets the ownership threshold for becoming a “controlling beneficial owner” of a marijuana company at 10 percent of a company’s securities, up from 5 percent, opening the door for more “passive” owners who do not have to undergo initial criminal background checks to get involved. Those passive owners can now own anything under 10 percent of a company.
The legislation comes at a time when Colorado business owners and trade groups are sounding the alarm about competition from other weed-legal states and other countries where investments rules are less stringent. With access to capital limited and tightly restricted in the state, some Colorado cannabis business veterans have set up outposts in Canada to get access to investor dollars to fuel further growth.
“Colorado was often seen as the most attractive place and most sustainable place to establish a legal cannabis business and today we’ve lost a lot of traction to other states,” Kristi Kelly, executive director of cannabis lobby the Marijuana Industry Group, said during Monday’s comment period. “Investors, both public and private, have turned their attention to other states and other countries.”
One amendment, championed by committee chair Rep. Leslie Herod, D-Denver, is focused on addressing the lack of many female and minority owners in Colorado’s now more than billion-dollar-per-year cannabis industry.
Dean Heizer, the executive director and chief legal strategist of LivWell Enlightened Health, said the bill would make it easier for LivWell to give its employees, including women and people of color, equity stakes in the business, helping them grow wealth along with the industry. LivWell is one of the largest cannabis businesses in the state with nearly 600employees, and Heizer said it has seen employees leave for other states like Massachusetts where the benefits are better.
“This is model legislation,” Heizer said.