Colorado Pot Stores Get Tax Guidance on Discounts and Coupons

Like other recreational marijuana retailers in Colorado, La Conte’s Clone Bar & Dispensary accepts coupons based on referrals and quantity purchased, and from day one, the store offers its employees 30 percent off any purchase.

“Those discounts are entered at point of sale as part of the transaction and totally transparent to regulators when we’re audited,” Jeremy Heidl, owner of La Conte’s Clone Bar & Dispensary, explained.

Last month, the state asked that all marijuana business uphold Colorado’s Marijuana Enforcement Division (MED) rules against giving out free product and issued a guide to address confusion surrounding employee discounts and how discounted sales should be taxed.

“Guidelines are needed because the state and their auditors were misinformed and making audit adjustments based on bad information,” said Heidl, who was among dispensary owners who asked for clarification about taxation from the Department of Revenue Tax Division.

Although discounts and rebates lower a dispensary’s profit margins, the overall motivation to accept coupons is to develop a loyal following.

“It’s a competitive market,” Jim Marty, a Denver-based CPA whose represents marijuana CEOs, said. “We have more than 500 retailers in Colorado. Coupons and discounts allow them to compete better like grocery stores. They help to build brand loyalty when the customer has so many choices.”

However, unlike a traditional grocery store where manufacturer coupons come from a different company, pot cultivators are often integrated with the dispensary where coupons are redeemed.

“Dispensaries aren’t typically being reimbursed by manufacturers because they are one in the same,” Heidl told High Times. “Grocery store chains, on the other hand, are often reimbursed by large manufacturers, and those reimbursements can run in the millions. State and local tax authorities should expect those discounts to be taxed because the actual price of the merchandise is the discounted price plus the coupon reimbursement.”

Although they are allowed to distribute coupons, cultivators cannot sell cannabis without a retail license.

“Cultivator coupons only became an issue when recreational marijuana was legalized in 2014 because under Colorado’s medical marijuana model there were no stand alone cultivators,” Marty told High Times.

This unique circumstance is among the reasons a marijuana industry group sought clarity from the state on how to appropriately tax discounted sales of recreational marijuana.

“The Department of Revenue came to the conclusion that discounts are allowed, but when a retailer offers a discount, the customer is taxed on the discounted amount—not on the pre-discounted amount,” Marty said. “Dispensary owners needed clarification. This is brand new territory for all of us.”

The most common coupons are discounts based on price or volume, but it depends on the retailer.

“Offers, discounts and coupons are all part of a marketing strategy,” Heidl said. “At the end of the day, retailers are profitable and the state and locals are collecting record tax revenues month over month. They shouldn’t mind how retailers structure the sales.”