Bipartisan Colorado Bill Would Change How Marijuana Is Taxed Based on Indoor vs Outdoor Grows

A bipartisan group of Colorado lawmakers has introduced legislation that would change how the state calculates marijuana taxes by separating indoor and outdoor cultivation when determining the “average market rate” used for taxation. House Bill 1077 was filed today and assigned to the House Finance Committee. The measure is sponsored by State Representative Ryan Gonzalez (R), State Representative Jenny Willford (D), State Representative William Lindstedt (D), State Senator Janice Marchman (D) and State Senator Marc Snyder (D).

Under current law, Colorado imposes a 15% tax on the first sale or transfer of unprocessed retail marijuana based on an “average market rate” determined by the Department of Revenue. That rate is calculated using the average price of all unprocessed marijuana sold from cultivation facilities to retailers or product manufacturers across the state.

HB 1077 would significantly refine that system.

Beginning July 1, 2026, the bill would require the Department of Revenue to set separate average market rates for indoor-grown and outdoor-grown unprocessed retail marijuana. The legislation specifies that the rates for outdoor marijuana must be lower than the rates for indoor marijuana.

The bill also maintains and clarifies an existing requirement that marijuana allocated for extractions must be taxed at a lower average market rate than marijuana allocated for direct sale to consumers. HB 1077 makes clear that this distinction must apply within both the indoor and outdoor categories.

The legislation formally defines:

“Indoor unprocessed retail marijuana” as marijuana cultivated inside using artificial lighting or in any manner other than outdoor cultivation.

“Outdoor unprocessed retail marijuana” as marijuana grown under natural sunlight and weather conditions without artificial light or light deprivation in the canopy area, with limited exceptions for small vegetative and mother plants.

By separating indoor and outdoor cultivation in the tax calculation, proponents say the bill would allow the state’s tax structure to better reflect production differences and market realities between the two growing methods.

The measure takes effect July 1, 2026, if approved.