Colorado’s Move to Eliminate Residency Requirements Could be a Boon to Cannabis Industry

By Jeff Bess, third-year stu­dent at the Uni­ver­sity of Wash­ing­ton School of Law. 

Image used under the Creative Commons License.

The continued growth and maturation of state-legal cannabis markets have led many to wonder just how the industry will develop going forward. Amid increasing speculation about the future of “Big Canna” and the globalization of the cannabis industry, a size limiting factor on the industry may be on its way out in Colorado.

Last month, the Colorado state legislature passed SB 40 – also known as the “Ownership Bill” – which lifts the current two-year residency requirement for all license holders. The bill requires only that one of the company’s officers be a Colorado resident and expands the classes of allowable ownership interests. If signed into law, the bill would allow Colorado to join Oregon in allowing out-of-state owners and investors to enter the recreational cannabis industry. This is a potentially dramatic shift that creates the possibility of multi-state recreational cannabis operations and could open up new flows of capital for an industry that often struggles to obtain traditional forms of financing.

Just how big of a change could it be? For some perspective, monthly cannabis sales in Colorado exceed $100 million. While some of that demand – as the states of Nebraska and Oklahoma would like you to know – comes from out-of-state residents and tourists, current law means that the supply side is entirely capitalized by in-state parties. If the strong interest from out-of-state residents looking to invest in Oregon cannabis is any indication, Colorado’s move to nix residency requirements would draw many entrepreneurs looking to get in on the early days of the industry to the state. For an industry much too risky for many conservative investors, these new sources of financing could be a boon to cannabis business owners. Not only could the bill enable capital-starved Coloradoans (indeed, this is the bill’s stated justification) to enter the market or expand, it could have numerous side-benefits such as the increased professionalization that is likely to accompany more sophisticated, well-financed, operations.

As SB 40 itself demonstrates, cannabis businesses operate in an incredibly fast-moving and relatively uncertain regulatory environment, and this will hardly be the final change in state policy towards the industry in Colorado or elsewhere. In fact, as Oregon’s lack of residency requirement and recent moves in Washington state in that direction suggest, strict residency requirements may one day be a vestige of the first wave of state legalization. For its part, California, which will vote to legalize recreational cannabis later this year, does not have a residency requirement for its existing medical cannabis program. If a shift away from residency requirements becomes a trend, Colorado may need to do the same in order to maintain its status as America’s oldest and most mature legal recreational cannabis market.

Ultimately, state legalization of cannabis is an experiment. Much has yet to be learned about how to optimally regulate this new industry, and more still remains to be seen about how the most successful recreational cannabis businesses will be organized, capitalized, and operated. If Colorado does go forward with eliminating its residency requirements, any resulting increase in investment or business activity will necessarily accelerate the pace of one of legal cannabis’s most significant experiments. Whatever the result, that is good news for all stakeholders interested in a rational, fully-informed approach to cannabis policy.

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