The Colorado Department of Revenue’s (CDOR) new Average Market Rates (AMRs) went into effect on April 1st. For the second 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. This is the first time since the legal adult-use market opened in 2014 that the AMR for flower has risen in two consecutive periods.
Beginning April 1st and lasting through the end of June, the AMR for flower has been set at $806 per pound. Therefore, flower transferred by cultivators to an associated adult-use storefront will be subject to a tax rate of $120.90 per pound, due to the state’s 15% excise tax on wholesale transfers in the recreational market. Q2 2019’s AMR for flower is up by 3.2% from the rate of $781 per pound, which was in effect during the first quarter.
AMRs for trim and “bud allocated for extraction” will also increase in Q2. The AMR for trim rose to $425 per pound as of April 1st, an increase of 7.3% from Q1’s AMR of $396 per pound for such product. Bud allocated for extraction’s AMR climbed to $227 per pound at the outset of April, up by 13.5% from Q1’s AMR of $200 per pound.
While some plant material designated for extraction and product manufacturing will see higher tax rates this quarter, trim allocated for extraction’s AMR will decline by 11.5%, from $200 in Q1 to $177 per pound in Q2. Wet whole plants will see their AMR remain stable at $151 per pound.
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. Additionally, AMRs are based on historical data, rather than reflecting transactions being executed currently. Q2’s AMRs were determined based on transactions observed by Colorado regulators from November 2018 through the end of January 2019.
Despite the divergences noted just above, we stated in our Premium Weekly Report for February 15th that, “the recent sustained upward trend in Colorado’s Spot Index, which commenced in early November 2018, suggests that the AMR for flower – and consequently, the amount of tax levied on that product type – may see another rise in Q2 2019.”
Still, despite rises in the AMRs for flower, trim, and bud allocated for extraction, it is possible that the tax burden of some adult-use cultivators may be shrinking overall. Such a scenario could occur if growers are transferring increased proportions of plant material for extraction and processing, while the percentage of flower transferred for retail sales shrinks. Monthly collections from the state’s 15% excise tax on wholesale trades and transfers by adult-use growers have generally trended downward since mid-2017, with falling wholesale prices also contributing to that phenomenon.