If you think my job as a regulatory lawyer sounds boring, just look at this November’s ballot to change your mind. Proposed changes to alcohol, nonprofit gambling and drug laws are being voted on in Colorado this cycle, and if approved, would lower barriers to entry and allow expansion in some of the state’s most regulatory-intensive businesses.
Ballot initiatives would let grocery and convenience stores sell wine in addition to beer, eventually permit liquor store owners to be licensed in an unlimited number of locations, allow third-party delivery services such as DoorDash to bring alcoholic beverages to your door, and allow paid and professional management of nonprofit organizations’ gaming.
Another measure, perhaps the one that will receive the most voter skepticism, would decriminalize psychedelic drugs such as psilocybin, mescaline and dimethyltryptamine (DMT).
These initiatives appear on the ballot against the backdrop of a two-decade trend toward deregulation in Colorado that began with loosening the state’s historically strict alcohol laws and the voter-approved legalization of medical marijuana in 2000, followed by voters sanctioning recreational use of cannabis in 2012 and state-licensed sales in 2014.
The voter approval of sports betting in 2019 was another step in the state’s citizens opting for more consumer choice, and it went into effect within two weeks after the pandemic officially hit in March 2020.
The current proposals are the product of, and continue the trend of, consumer sentiment that favors more choice and less government intrusion in adult activities, especially if the primary intent of a regulatory regime is to limit competition, as appears to be the case with alcohol regulations.
Just a few years ago, Coloradans couldn’t pick up a six-pack of full-strength beer in a grocery store. Thanks to Colorado voters, a new generation of adults doesn’t even know what “3.2 Beer” or “Near Beer” is.
Anyone involved in related businesses – restaurants; food delivery services; retail alcohol, grocery, and convenience stores; gaming; and nonprofits that use raffles or other gaming as fundraisers should watch the outcome of these initiatives closely.
Easier consumer access to alcohol
Colorado voters will consider three alcohol initiatives. Proposition 125 would open up the sale of wine in grocery and convenience stores, ending liquor stores’ monopoly on these sales in Colorado. This would be a seamless transition for retailers and would bring Colorado in line with most states, where consumers can buy both beer and wine at grocery stores.
Any store that is licensed to sell beer automatically would be licensed to sell wine as of March 1, 2023 under this change to Colorado liquor laws. Retailers also would be allowed to conduct wine and beer tastings if they do not create a public safety hazard and are approved by the local government. Certain distance restrictions will apply to beer and wine locations.
Proposition 124 would incrementally increase the number of retail liquor store licenses an individual can own or have an interest in, and thus expand the number of stores that can be owned by a single individual or corporate owner. Currently, one owner can hold or have a partial interest in three licenses (up from one just a few years ago), and that has kept national chains from building a presence in the state, as well as limiting expansion by local owners. Under Proposition 124, the number of licenses that can be held increases to eight initially, and then rises incrementally until all limits would be abolished in 2037.
Proposition 126 would allow restaurants, liquor stores and other businesses holding a liquor license to use third-party delivery services such as DoorDash and Instacart to deliver all types of alcoholic beverages to adult customers at their homes. At present, only liquor stores and their employees can make home delivery of alcohol and they must use a store-owned vehicle.
The measure seemingly would be a huge boost to home alcohol delivery because it removes the current limit on the percentage of gross sales a liquor licensee can receive from alcohol deliveries and allows private companies that are already delivering food and other household items to enter the Colorado alcohol delivery space.
Passage of Proposition 126 would open up a whole market of more than 5,000 restaurants, and 1,300 small liquor stores, to the delivery services industry, allowing these 6,000-plus small businesses to access a new business revenue stream that currently is reserved exclusively for the handful of large capitalized restaurants and liquor stores.
Nonprofits aim for gaming boost
Nonprofits such as Scouts, churches and PTAs raise funds with raffles, pull tabs and bingo, but often retain a surprisingly small percentage of the revenue because they hire professional, outside companies to operate their games. The local PTA is unlikely to have someone who has knowledge of gaming laws, but the state currently bans nonprofits from paying an employee to manage their games.
That would change under Constitutional Amendment F, which would allow nonprofits to pay an employee to manage games. The new structure would be phased in with nonprofits restricted to paying the minimum wage to such an employee through July 2024 and then lifts all limits on compensation.
The initiative would also change the current law that requires nonprofits to be registered for five years before they can offer games of chance, reducing the threshold to three years.
Although nonprofit gaming brings in a relatively small amount of revenue, the measure could blur the line between for-profit and nonprofit gaming, while making it easier for nonprofits to use gaming in fundraising. As a constitutional amendment, this measure requires the support of 55% of the votes cast to pass.
Mushrooms on the ballot
The wild card in this bundle of initiatives is Proposition 122, which would define mescaline, DMT, ibogaine and psilocybin – all hallucinogens derived from plants or mushrooms – as “natural medicines,” and decriminalize their personal use, possession, growth, transport and transfer to others without pay for those over the age of 21. People who previously were convicted for use or possession of these drugs could petition a court to seal the records of their convictions.
If approved, the Colorado Department of Regulatory Agencies would be charged with creating a regulatory structure over the next several years for these substances that would provide for licensed providers and “healing centers.” Local governments would have limited authority to regulate the facilities where these newly defined natural medicines are dispensed.
The legal use and sale of hallucinogens would take off slowly and is unlikely to ever rival marijuana or alcohol, which now benefit from broad social acceptance. These drugs still are considered a Schedule 1 controlled substances by the federal government, and although enforcement currently is a low priority at the U.S. Department of Justice, that could change in a future administration. Nationally chartered banks will continue to be skittish about providing services to such businesses. Anyone contemplating entry into this business, even with the blessing of Colorado voters, should proceed with caution.
I won’t predict whether these initiatives will pass, but I will say that if even one passes, it would show that Colorado is continuing its trend towards loosening restrictions on adult activities. More importantly, it would re-enforce the notion that regulatory lawyers are cool.
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