Cracking down on the black and “gray” marijuana markets in Colorado is needed and supported by both the state’s legal marijuana industry and state regulators, a Denver City Council committee was recently told.

Kristi Kelly, interim executive director of the Marijuana Industry Group, told the Special Issues Committee that regulation of medical and recreational marijuana in Colorado is “incredibly complicated, with regulated and non-regulated sources.”

“Where the problems come in are with the non-licensed medical caregivers and Amendment 64 home grows,” she said. “They’re regulated, but people abuse the system” to create a so-called “gray” market of suppliers.

Kelly’s figures showed Denver has 562 licensed marijuana cultivation facilities, 351 stores and centers, 134 marijuana infused products licensees and seven testing facilities. Of Colorado’s more than 2,900 licensed medical and recreational marijuana businesses, 38 percent, or more than 1,100, are in Denver.

An unknown number of non-licensed medical and recreational marijuana collectives or cooperatives, caregivers, home grows and illegal operations are also present, Kelly said, helping create the “gray” market for illegal marijuana sales.

Marijuana “cooperatives” develop when state residents get together to “assist” each other in growing their authorized six plants. Since these operations are unregulated by state agencies, theoretically there is no limit to how many people could cooperate with each other.

Andrew Freedman, state director for marijuana coordination, said most of the issues come from abuse of Amendment 20, or medical marijuana.

“When we’ve tried to prosecute someone for violating their caregiver limits, they change their designation to a cooperative and the case ends up being dropped,” Freedman told the committee. “It becomes a kind of mix-and-match arrangement, where they say ‘here I’m a caregiver, here I’m a cooperative.'”

Legal, regulated markets impacting illegal sales

Kelly cited a study that found while legal marijuana sales grew by 42 percent between 2014 and 2015, black market sales were estimated to have dropped by 36 percent, to 7.48 metric tons.

In 2014, about 59 percent of the total Colorado demand for marijuana was supplied by the regulated market, she added. The remaining 41 percent was split between unregulated home grows, gray and black market outlets.

“If the licensed medical providers we had in 2014 had been able to grow at capacity just during the month of December, they could have produced 46.9 metric tons, more than enough to basically eliminate black market sales,” Kelly said. “But we also know that a lot of the public doesn’t differentiate between illegal marijuana sales and the regulated market.”

For example, Kelly said a Craigslist online ad offering marijuana for sale in Colorado on Dec. 7 had 665 online “hits” from people in the Denver area wanting to purchase the marijuana.

“This is a rampant practice and it’s easy for people to find,” she added. “We need to have collaboration at all levels to find the right, practical solutions.”

Freedman said other states that allow marijuana sales have stricter limits on the total number of plants that can be grown at a single place.

“Colorado stands out as one of the loosest home grow laws in the nation,” he stated, where up to 600 plants can be grown under certain conditions.

And black and gray market prices out-of-state are usually around four times as high as Colorado’s approximate $1,000 per pound price, Freedman added.

Municipalities have responded by passing ordinances that designate violations as zoning issues, subject only to small fines and not criminal charges, he said.

“So if you have a $500,000 operation, you can afford to pay a small fine as a cost of doing business,” Freedman said. “That’s why we’re seeing organized crime involved in these, with the same groups using the similar methods. It’s a little like trying to shut down Al Capone’s men during prohibition. They can sell outside Colorado without having to meet public health and safety standards and to underage youth.”

Closing loopholes needed

Kelly said the industry supports exploring “hard count” plant limits to dismantle grows that violate the intent of Amendment 20 and Amendment 64. Other steps should include working toward transparency for unregulated grows, providing more resources for enforcement, working with other industries to create “watch” programs, expanding educational campaigns with industry participation and free materials, and maintaining a  dialogue about research, tax reform, and safe access of marijuana.

As of Jan. 1, 2017, Freedman said, a new caregiver registration system is due to begin in Colorado that should result in more licensed caregivers. Legislation will also be pursued in the upcoming session to try to close some of the loopholes in the two amendments that helped cause these and other issues, he added.

One bill would seek $8 million to help reimburse law enforcement agencies in their pursuit of black and gray market operations.

“That’s mostly in rural areas, where we’ve seen the large-scale abuse happening,” Freedman said.