Are a marijuana cultivator and dispensaries 'affiliated' for the retail marijuana excise tax when they have no common ownership but are both controlled by the same branding company through contracts?
Plain-English summary
Colorado charges a 15% excise tax on the first sale or transfer of unprocessed retail marijuana by a cultivation facility. The catch is how the 15% is measured:
- Between unaffiliated licensees → 15% of the contract price (the actual deal price).
- Between affiliated licensees → 15% of the average market rate (a Department-set benchmark, used so related parties can't lower the tax with a sweetheart price).
So a cultivator must know whether it's affiliated with its buyers. Here, a cultivation facility ("Company A") and several dispensaries had no common owner, but a branding company ("Company X") sat in the middle with tight contracts. The question: are they "affiliated"? The Department said yes — and three sub-points explain why.
1. Common ownership is not required. "Affiliated marijuana business licensees" are defined as licensees "owned or controlled by the same or related interests." Because it's owned or controlled, control alone is enough — common ownership isn't necessary.
2. There is common control — by contract. The Marijuana Code defines "control" / "under common control with" as the power, direct or indirect, to direct a person's management or policies "whether through the ownership of voting owner's interests, by contract, or otherwise." Company X's contracts gave it control of both sides: it licensed strain names to Company A, set the wholesale prices, dictated which dispensaries Company A could sell to, and controlled packaging/marketing; and it required the dispensaries to operate as its brand, managed their day-to-day operations, required them to buy from Company A, and set their retail prices. Both are under Company X's control.
3. Therefore they're affiliated. Because Company X controls both Company A and the dispensaries, those two are controlled by the same interest and are "affiliated marijuana business licensees" under § 39-28.8-101(1). Practical upshot: Company A's excise tax on its first sale is computed on the average market rate, not the contract price.
Scope note: the Department expressly limited this ruling to Colorado tax statutes (Title 39). It did not decide anything under the Colorado Marijuana Code (Title 44) or the Marijuana Rules beyond borrowing their definitions of "control."
What this means for you
Marijuana cultivators, dispensaries, and brand/licensing companies
You can be "affiliated" for the excise tax without any shared ownership. If a brand or management company controls both the grower and the buyer through contracts — setting prices, dictating buyers, running operations — the Department can treat the parties as affiliated, and the cultivator's first-sale excise tax is then based on the average market rate rather than the contract price. Structure and contract terms, not just the cap table, determine affiliation.
Accountants and tax professionals
The dividing line is § 39-28.8-302(1)(a)(I) (contract price vs. average market rate), and affiliation turns on § 39-28.8-101(1)'s "owned or controlled" plus the broad "by contract, or otherwise" control definition in § 44-10-103(12). Map out who directs management/policies; pervasive contractual control over both seller and buyer creates common control even with separate ownership.
Common questions
Q: Do marijuana businesses need common ownership to be "affiliated" for the excise tax?
A: No. Affiliation requires being "owned or controlled by the same or related interests," so contractual common control alone is enough.
Q: What counts as "control" here?
A: The power, direct or indirect, to direct a person's management or policies — through ownership, by contract, or otherwise. Pervasive contract control over pricing, buyers, and operations qualifies.
Q: Why does affiliation matter?
A: For affiliated licensees, the 15% excise tax on the first sale of unprocessed retail marijuana is figured on the average market rate, not the contract price.
Q: Does this ruling decide licensing or Marijuana Code questions?
A: No. It's limited to Colorado tax statutes (Title 39); it borrows the Marijuana Code's control definitions but doesn't decide Marijuana Code or Marijuana Rules questions.
Q: Can other taxpayers rely on this ruling?
A: No. A private letter ruling binds the Department only for the taxpayer and facts it was issued to and cannot be relied on by anyone else.
Citations and references
Statutes and rules:
- § 39-28.8-302(1)(a)(I), C.R.S. (15% excise tax; contract price for unaffiliated vs. average market rate for affiliated)
- § 39-28.8-101(1), C.R.S. (definition of "affiliated marijuana business licensees" — owned or controlled by same/related interests)
- § 44-10-103(12), C.R.S. (definitions of "control" and "under common control with" — including by contract)
- 1 CCR 201-18, Rule 39-28.8-101; 1 CCR 212-3, Rule 1-115 ("Control")
Source
- Landing page: Colorado Letter Rulings
- Original PDF: PLR-23-005.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
PLR 23-005
September 6, 2023
XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
Via Electronic Mail: XXXXXXXXXXXXX
Re: Affiliation of Retail Marijuana Business Licensees for the Purpose of Determining Excise
Tax
Dear XXXXXXXXXX:
You submitted a request for a private letter ruling on behalf of XXXXXXXXXX (“Company A”) to
the Colorado Department of Revenue (“Department”) pursuant to 1 CCR 201-1, Rule 24-35103.5. This letter is the Department’s private letter ruling. This ruling is binding on the
Department to the extent set forth in 1 CCR 201-1, Rule 24-35-103.5. It cannot be relied upon
by any taxpayer other than the taxpayer to whom the ruling is made.
Issues
1. Whether common ownership is a requirement for affiliation.
2. Whether Company A is under common control with the dispensaries.
3. Whether Company A is affiliated with the dispensaries.
Conclusions
1. No, common ownership is not a requirement for affiliation.
2. Yes, Company A is under common control with the dispensaries.
3. Yes, Company A and the dispensaries are “affiliated marijuana business licensees” as that
phrase is defined in section 39-28.8-101(1), C.R.S.
PLR 23-005
September 6, 2023
Page 2
Background1
Company A is a cultivation center that cultivates marijuana. Company A is under contract with
Company X. Pursuant to this contract, Company X licenses strain names to Company A; directs
which licensed strains and the quantity of licensed strains per month Company A must cultivate;
may request samples of the licensed strains for inspection and approval; determines the
wholesale price of licensed strains that are cultivated and sold by Company A; directs Company
A as to which dispensaries the licensed strains may be sold; provides Company A with branded
packaging for the licensed strains from Company X; directs Company A as to how to package
the licensed strains; markets the licensed strains that are cultivated and sold by Company A;
and receives a ten percent royalty fee on the wholesale of the licensed strains cultivated and
sold by Company A.
Company X also operates under contracts with multiple dispensaries. Pursuant to the
dispensary contracts, Company X licenses its intellectual property, trademarks, and trade
names (the “Brand”) to the dispensaries; requires the dispensaries to remodel its retail sales
space and operate as Company X’s brand; substantially controls and manages the
dispensaries’ day-to-day operations; requires the dispensaries to purchase marijuana from
Company A, all of which are the licensed strains; requires the dispensaries to dedicate not less
than fifty percent of their retail sales to the sale of the licensed strains; determines the point-ofsale system that the dispensaries must use in connection with operating as the Brand;
determines the wholesale price paid by the dispensaries to Company A; determines the retail
sales price of the marijuana sold by the dispensaries to consumers; and receives a four percent
royalty fee on the retail sale of all marijuana sold by the dispensaries.
There is no common ownership between Company A, Company X, and the dispensaries.
Discussion
Colorado imposes an excise tax on the first sale or transfer of unprocessed retail marijuana by a
retail marijuana cultivation facility.2 The excise tax is fifteen percent of the contract price for the
unprocessed retail marijuana if the transaction is between unaffiliated retail marijuana business
licensees.3 For affiliated retail marijuana business licensees, the excise tax is fifteen percent of
the average market rate of the unprocessed retail marijuana.4 Retail marijuana business
licensees must therefore determine affiliation to establish the appropriate excise tax due.
“Affiliated marijuana business licensees” are statutorily defined as “marijuana business
licensees that are owned or controlled by the same or related interests . . . .”5 Because the
marijuana business licensees may be either owned or controlled by the same interests to be
1 Paragraph (4)(b)(ii) of 1 CCR 201-1, Rule 24-35-103.5 requires the request for a private letter ruling to include a
statement of facts. This section generally recites the statement of facts provided in the request, which is not an
indication that the Department found such facts relevant to its analysis. Some relevant facts may be omitted to ensure
confidentiality as required by section 24-35-103.5(5), C.R.S. The terms used in this section to describe the factual
background are generally those of the requester.
2 Section 39-28.8-302(1)(a)(I), C.R.S.
3 Id.
4 Id.
5 Section 39-28.8-101(1), C.R.S.; see also paragraph (2) of 1 CCR 201-18, Rule 39-28.8-101.
PLR 23-005
September 6, 2023
Page 3
affiliated, the plain language of the statute does not require common ownership to determine
affiliation.
The Colorado Marijuana Code defines “control” and “under common control with” as “the
possession, direct or indirect, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of voting owner's interests, by contract, or
otherwise.”6 Because Company X licenses strain names to Company A, determines the
wholesale price of the licensed strains, directs the dispensaries to which Company A sells their
licensed strains, and directs the packaging and marketing for the licensed strains that Company
A cultivates, among other things, Company X has control via contract over Company A.
Similarly, Company X has control via contracts over the dispensaries because Company X
requires the dispensaries to remodel their sales spaces and operate as Company X’s brand,
substantially controls and manages the day-to-day operations of the dispensaries, requires the
dispensaries to purchase substantially all of their marijuana from Company A, and determines
the retail sales price of the retail marijuana sold by the dispensaries. Based on these facts, both
Company A and the dispensaries are under the control of Company X, and Company A is under
common control with the dispensaries.
In considering whether Company A and the dispensaries are affiliated, we look again to the
statutory definition of “affiliated marijuana business licensees.”7 According to this definition,
affiliated retail business licensees are those “that are owned or controlled by the same or related
interests….”8 Because Company X controls both Company A and the dispensaries, meaning
Company A and the dispensaries are controlled by the same interest, Company A and the
dispensaries are affiliated marijuana licensees.9
Miscellaneous
This ruling is premised on the assumption that Company A has completely and accurately
disclosed all material facts, that all representations are true and complete, and that Company A
has otherwise complied with the requirements of section 24-35-103.5, C.R.S., and the rules
promulgated pursuant thereto. The Department reserves the right, among others, to
independently evaluate Company A’s facts, representations, and assumptions. The ruling is null
and void if any such fact, representation, or assumption is incorrect and has a material bearing
on the conclusions reached in this ruling. This ruling is binding on the Department and is subject
to modification or revocation, in accordance with 1 CCR 201-1, Rule 24-35-103.5.
Thank you for your request.
6 Section 44-10-103(12), C.R.S. (emphasis added); see also 1 CCR 212–3, Rule 1-115 – Definitions, “Control.”
Under 1 CCR 201-18, Rule 39-28.8-101(1), terms defined in section 44-10-103, C.R.S., and 1 CCR 212–3, Rule 1115, have the same meanings when used in the Retail Marijuana Tax rules.
7 Section 39-28.8-101(1), C.R.S.
8 Id.
9
The conclusions in this Private Letter Ruling are for Colorado tax purposes only. Except for the definitions
addressed above, this letter does not include analysis of any statutes or rules beyond those in the tax statutes in title
39, C.R.S., including, but not limited to, the Colorado Marijuana Code, article 10 of title 44, C.R.S., or the Colorado
Marijuana Rules, 1 CCR 212–3. Determinations regarding the Colorado Marijuana Code, the Colorado Marijuana
Rules, or the application of those to any particular facts are outside the scope of this Private Letter Ruling.
PLR 23-005
September 6, 2023
Page 4
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the taxpayer to whom
the ruling is made.