The Colorado Department of Revenue (CDOR) released new Average Market Rates (AMRs) last week, which will go into effect on July 1. For the third quarter in a row, licensed cultivators in Colorado who transfer flower to a commonly owned adult-use retail outlet will face a slightly higher tax burden relative to the prior period. Meanwhile, AMRs for plant material devoted to extraction remained stable, and significantly below that for flower, perhaps providing an incentive for vertically integrated operations to devote more of their production to processing and product manufacturing.
Beginning July 1 and lasting through the end of September, the AMR for flower has been set at $850 per pound. Therefore, flower transferred by cultivators to an associated adult-use storefront will be subject to a levy of $127.50 per pound, due to the state’s 15% excise tax on wholesale transfers in the recreational market. Q3 2019’s AMR for flower is up by 5.5% from the rate of $806 per pound, which has been in effect during the current quarter.
Meanwhile, the AMR for trim has been reduced. As of July 1, the AMR for trim will decrease to $325 per pound, down by 23.5% from $425 per pound in Q2. With the addition of the categories of “bud and trim allocated for extraction,” which we discuss just below, trim transferred by cultivators is often employed to make pre-rolls. It can also be sold directly to consumers at lower price points, making up the object of specials and promotions run by retailers.
AMRs for bud and trim allocated for extraction will remain unchanged in Q3, holding at $227 and $177 per pound, respectively. Therefore, adult-use cultivators transferring such product to associated extraction and product manufacturing operations will see no change in their tax burden for such activities.
Finally, the AMR for wet whole plants, also used for extraction, will increase nominally to $152 per pound beginning July 1, up from $151 per pound in the current quarter.
As always, we must note that CDOR’s methodology for calculating the state’s AMRs is different from that employed by Cannabis Benchmarks in determining our price assessments. One major difference is that CDOR’s AMRs are medians, while our price assessments are volume-weighted averages. Additionally, AMRs are based on historical data, rather than reflecting transactions being executed currently. Q3’s AMRs were determined based on transactions observed by Colorado regulators from February 1, 2019 through the end of April 2019.