Colorado SB 246: Eliminate Gray & Black Market Marijuana Grant Program

Budget Austerity Creates a Concerning Enforcement Feedback Loop

The Silent Majority 420 | November 2025

The Bill at a Glance

Executive Summary

Colorado SB 246 eliminates the Gray and Black Market Marijuana Enforcement Grant Program—a funding mechanism created in 2017 that reimburses local law enforcement agencies and district attorneys for investigation and prosecution costs related to unlicensed marijuana operations. The bill stops new grants immediately and fully repeals the program by mid-2026.

CBDT Assessment: This is a budget-driven cut with potentially significant market consequences. SB 246 weakens the Enforcement variable (E) in the CBDT Framework, which determines how effectively states suppress illicit supply competition. Projected market share impact: -0.5 to -1.5 percentage points.

More concerning than the direct impact is the feedback loop the bill creates: declining cannabis tax revenue forced budget cuts, which reduce enforcement capacity, which could increase illicit market share, which further reduces legal market revenue, which forces more budget cuts. Colorado is now experiencing the downward spiral the CBDT Framework predicts when enforcement intensity declines without offsetting improvements in price competitiveness.

The Problem: Revenue Decline Forces Budget Cuts

Colorado's cannabis market has declined 37% from its 2021 peak of $2.23 billion to approximately $1.4 billion in 2024. Tax revenue has dropped roughly $50 million annually from peak levels.

The Marijuana Tax Cash Fund—which finances enforcement grants, substance abuse treatment, education, and other programs—now faces structural shortfalls. The Joint Budget Committee identified the Gray and Black Market Enforcement Grant Program as expendable.

The math:

• 2021 peak tax revenue: ~$423 million
• 2024 tax revenue: ~$255 million
• Revenue decline: ~$168 million (-40%)
• Grant program annual cost: ~$5.9 million
• Savings as percentage of shortfall: 3.5%

SB 246 saves approximately $5.9 million annually—meaningful for a strained budget, but a small fraction of the revenue decline driving the cuts.

What SB 246 Does

Key Provisions:

• Prohibits the Division of Local Government (DOLA) from awarding grants in FY 2025-26
• Fully repeals the program on June 30, 2026
• Existing contracts honored through their expiration dates (May 31, 2025 or May 31, 2026)
• Grantees must return unspent funds and close out contracts by specified dates

What the Program Did (2017-2025):

The Gray and Black Market Marijuana Enforcement Grant Program, created by HB 17-1221, provided:

• Financial assistance to local law enforcement agencies
• Grants to district attorneys for prosecution costs
• Reimbursement for investigation costs related to unlicensed cultivation and distribution
• Priority funding to rural jurisdictions with limited enforcement resources
• Tribal government eligibility
• Formula-based awards determined by population

The program was recommended by the Committee on Cost-benefit Analysis of Legalized Marijuana in Colorado and originally funded at $5,945,392 from the Marijuana Tax Cash Fund.

The CBDT Framework Analysis

The Consumer-Driven Black Market Displacement (CBDT) Framework identifies five levers determining legal market capture. SB 246 directly weakens one—Enforcement—while triggering a potentially self-reinforcing decline.

Lever 1: Price Gap (g) — NO EFFECT

Weight: 4× (highest impact)

SB 246 does not affect cannabis pricing. The bill neither raises nor lowers taxes, compliance costs, or wholesale prices. The price gap between legal and illicit cannabis remains unchanged by this legislation.

CBDT impact: 0 percentage points

Lever 2: Access Density (D) — NO EFFECT

Weight: 1×

The bill does not affect dispensary licensing, location restrictions, or consumer access to legal retail. Colorado maintains approximately 976 licensed dispensaries (287 medical, 689 recreational).

CBDT impact: 0 percentage points

Lever 3: Safety/Quality (S) — NO EFFECT

Weight: 1.2×

SB 246 does not affect product testing, lab certification, or quality standards administered by the Marijuana Enforcement Division. Colorado's testing requirements remain intact.

CBDT impact: 0 percentage points

Lever 4: Convenience (F) — NO EFFECT

Weight: 1×

The bill does not change operating hours, delivery availability, payment options, or purchase limits. Consumer convenience is unchanged.

CBDT impact: 0 percentage points

Lever 5: Enforcement (E) — MODERATE NEGATIVE

Weight: 0.6×

This is SB 246's primary impact. The bill directly reduces resources available for illicit market interdiction.

Enforcement mechanism affected:

• Local law enforcement loses reimbursement for marijuana-related investigations
• District attorneys lose prosecution funding support
• Rural jurisdictions—which received priority funding—face disproportionate impact
• Multi-agency coordination capacity diminishes

The enforcement reality:

Colorado faces a significant illicit cultivation problem. DEA data indicates 95% of marijuana seized on the East Coast traces back to Colorado. Notable busts since legalization include operations with 80,000+ plants, 18 warehouses, and multi-state distribution networks.

Local agencies—particularly in rural areas where illegal grows concentrate—relied on grant funding to investigate these operations. Without reimbursement, agencies must:

1. Redirect general fund resources (competing with other priorities)
2. Reduce marijuana enforcement activity
3. Allow smaller operations to continue unchallenged

CBDT impact: -0.5 to -1.0 percentage points (direct)

Fragmentation Modifier (F_frag) — MINOR NEGATIVE

Weight: −0.8×

The bill creates enforcement fragmentation. Some jurisdictions will maintain marijuana enforcement; others will deprioritize it. This creates geographic inconsistency—illicit operators can concentrate in under-enforced areas.

CBDT impact: -0.1 to -0.2 percentage points

CBDT Score Summary

Colorado legal market share:

• Current: 73-78%
• Post-SB 246 (full implementation): 72-77%

The Feedback Loop Problem

SB 246's most concerning aspect isn't the direct enforcement impact—it's what the bill signals about Colorado's fiscal trajectory.

The Downward Spiral:

Declining Legal Sales
        ↓
Reduced Tax Revenue
        ↓
Budget Cuts (SB 246)
        ↓
Weaker Enforcement
        ↓
More Illicit Competition
        ↓
Further Legal Sales Decline
        ↓
(Repeat)

This is the Failed Scenario the CBDT Framework predicts: a market that cannot sustain the enforcement intensity necessary to suppress illicit competition, leading to progressive decline.

Evidence the loop is active:

1. SB 246 (enforcement grants): $5.9M cut
2. SB 268 (treatment program): $3M annual appropriation ended
3. Industry job losses: 15,000+ since 2021
4. Business closures: Margin compression forcing consolidation

Colorado isn't cutting enforcement because illicit markets shrank. Colorado is cutting enforcement because the legal market can't generate enough revenue to fund it.

Comparison: State Enforcement Approaches

California comparison: California's 50% legal market share is partially attributable to enforcement failure—only 3% of unlicensed operators face consequences. Colorado's grant program prevented this outcome; its elimination moves Colorado toward the California model.

Winners and Losers

Winners

Losers

Neutral

Political Context

SB 246 emerged from the Joint Budget Committee—not the criminal justice or marijuana policy committees. This framing matters: the bill was presented as fiscal necessity, not policy choice.

Vote breakdown:

• Senate: 29-1, then 31-2 (near-unanimous)
• House Appropriations: 9-2
• Bipartisan sponsorship

The overwhelming support reflects legislative consensus that declining marijuana revenue requires expenditure reduction. Whether eliminating enforcement grants was the optimal cut received less scrutiny than whether some cut was necessary.

What wasn't debated:

• Whether reduced enforcement would accelerate revenue decline
• Whether the $5.9M savings would cost more in lost tax revenue
• Whether federal reform might restore enforcement funding
• Whether alternative funding mechanisms existed

What SB 246 Doesn't Do

The bill does not address Colorado's actual market challenges:

SB 246 is a budget bill. It is not cannabis market reform. It doesn't solve Colorado's structural problems—and may accelerate them.

Related Colorado Cannabis Legislation (2025)

Net 2025 legislative impact: Approximately neutral. HB 1209's regulatory improvements roughly offset SB 246's enforcement reduction—but this masks the concerning trajectory.

The Alternative Path Not Taken

What could Colorado have done instead of cutting enforcement?

Option 1: Federal Reform Advocacy

• Schedule III rescheduling would eliminate 280E
• SAFE Banking would improve convenience and reduce costs
• Combined: +$80-120M annual revenue, easily funding enforcement

Option 2: Tax Reduction

• Reducing the 15% retail excise tax could stimulate volume
• Revenue per transaction decreases, but transactions increase
• Maintains enforcement while improving competitiveness

Option 3: Regional Coordination

• Partner with neighboring states on interstate trafficking
• Federal grant applications for multi-jurisdictional operations
• Leverage DEA cooperation already occurring

Option 4: Sunset Extension

• Extend program with reduced funding rather than elimination
• Maintain enforcement presence while acknowledging budget constraints
• Review annually as revenue trajectory clarifies

Instead, Colorado chose full elimination—the path most likely to accelerate the revenue decline causing the problem.

CBDT Verdict

Should Colorado have passed SB 246? No. The bill saves $5.9 million while potentially costing tens of millions in accelerated revenue decline. Budget constraints are real, but cutting enforcement is the wrong response when illicit competition is already suppressing legal market share.

Does SB 246 improve Colorado's legal market capture? No. The bill weakens enforcement, potentially reducing legal market share by 0.5-1.5 percentage points.

What would improve Colorado's market? Federal 280E elimination and SAFE Banking passage would add $80-120 million annually—rendering enforcement grant debates irrelevant. Colorado's problem isn't a $5.9 million enforcement program; it's $168 million in lost revenue from federal policy constraints.

The feedback loop risk: SB 246 may prove to be the legislation Colorado points to when analyzing "what went wrong." Cutting enforcement during a market downturn accelerates the downturn. The savings are immediate; the costs compound over years.

Bottom line: SB 246 is a symptom, not a solution. Colorado's cannabis market is declining because federal policy prevents price competitiveness. Cutting enforcement doesn't address that—it makes it worse. The $5.9 million saved will cost more in lost tax revenue than it saves in appropriations.

The pioneer state deserves better than managed decline.

CBDT Framework Citation

This analysis applies the Consumer-Driven Black Market Displacement Framework:

The Silent Majority 420, "Consumer-Driven Black Market Displacement (CBDT) Framework: A Behavioral-Utility Heuristic for Illicit-to-Legal Market Transition," Zenodo, 2025. DOI: 10.5281/zenodo.17593077

Validation data: Harvard Dataverse, DOI: 10.7910/DVN/MDVDTQ

Sources:

• Colorado General Assembly - SB25-246
• Division of Local Government - Grant Program
• Colorado Department of Revenue - Marijuana Data

Related: Colorado Cannabis Market Analysis | Cannabis Bills Tracker

The Silent Majority 420 is an independent cannabis policy analyst. The CBDT Framework represents the first validated consumer-utility model for predicting market outcomes in vice legalization.

Analysis licensed CC BY 4.0