Colorado Leads, a nonprofit business association representing the Colorado cannabis industry, applauded an industry bulletin distributed Monday by the Colorado Marijuana Enforcement Division aimed at cracking down on inversion of hemp-derived, synthetic, or otherwise unlicensed THC and THCA products from outside the regulated marijuana industry.

Industry Bulletin: 26-03 outlines enhanced enforcement priorities aimed at addressing compliance issues that pose serious risks to public safety, market integrity, and the tax revenue framework that supports Colorado’s regulated marijuana industry.

The bulletin puts all licensees on notice that the MED intends to continue enhanced enforcement and pursue rulemaking in three priority areas:

• Misclassification of transfers in the Inventory Tracking System (ITS) — The MED has identified a pattern of licensees reporting regulated marijuana transfers at nominal prices—in some cases as low as one dollar—or miscategorizing transactions in ways that misrepresent the actual transfer and evade excise tax obligations. Such conduct is a Level 1 violation and will be referred to the Department of Revenue’s Taxation Field Audit and Criminal Investigations teams, in addition to administrative action by MED.
• Enhanced ITS transaction monitoring – The MED will continue to flag irregular transaction patterns, including below-market transfer pricing, implausible extraction yields, transfers inconsistent with standard industry practices, and associations with parties that have demonstrated patterns of noncompliance. Licensees who cannot substantiate anomalous entries may face administrative holds, product embargos, and sanctions up to and including license suspension, revocation, and referral to law enforcement.
• Inversion of outside THC and THCA products – The MED reaffirmed that the introduction of hemp-derived, synthetic, or otherwise unlicensed THC and THCA into the regulated supply chain is strictly prohibited. Violations will trigger immediate product embargo, recommendations for license suspension or revocation, significant fines, and referral to law enforcement. The MED also noted that its 2025 rulemaking modified testing requirements to better identify illicit inputs, and it is exploring further protocols to detect inverted THC products across the supply chain.

The bulletin also reminds licensees of their affirmative obligation under Rule 3-920 to report any known plan or action to commit diversion or compromise the integrity of the ITS, and it encourages licensees to perform due diligence on the businesses they work with—including visiting licensed premises to confirm that cleanliness, quality systems, video surveillance, recordkeeping, and testing practices meet expectations.

“Colorado’s regulated cannabis industry was built on the premise that responsible oversight and a level playing field are essential to a functioning market”, says Chuck Smith, CEO of Colorado Leads. “The overwhelming majority of Colorado’s licensed operators work hard every day to comply with the strongest rules in the country—and they are the ones harmed most when bad actors underprice transfers to avoid excise taxes, falsify inventory data, or introduce unregulated product into the legal supply chain.”

Smith continues by saying “We applaud the Marijuana Enforcement Division for taking clear, decisive action to hold those bad actors accountable. Protecting the integrity of our market is how we protect consumers, preserve the tax revenue Coloradans rely on, and ensure that Colorado remains the national model for sensible, evidence-based cannabis regulation.”

Smith ends by adding “Colorado Leads encourages its members and all licensees to review Industry Bulletin 26-03 in full, implement the due diligence measures it recommends, and use the MED Reporting Form to report suspected noncompliance or activity that threatens public safety.”

Colorado Leads is “an alliance of cannabis business leaders created to educate the public and policymakers about the importance of a vibrant safe and sensibly regulated cannabis industry and its economic contributions”, according to their website. It comprises licensed operators and ancillary businesses that recognize a sustainable cannabis business climate and responsible cannabis industry are critical to the state’s economy and the wellbeing of local communities. For more information, visit https://coleads.org.