Pubdate: Fri, 06 Jan 2012
Source: Seattle Times (WA)
Copyright: 2012 The Seattle Times Company
Contact:  http://seattletimes.nwsource.com/
Details: http://www.mapinc.org/media/409
Author: Jonathan Martin

ROCKY MOUNTAIN HIGH

Inside the industrial-scale marijuana grow farms that dot Denver's
low-rise warehouse districts, it is perpetual summer - 78 degrees,
moderate humidity and fields of shoulder-high plants with fat, sticky
buds swaying in the breeze.

These unmarked THC factories are easy to miss from the street, except
for the casino-style security cameras perched on each corner. But
inside the world's only fully regulated, for-profit marijuana market,
there are few secrets.

Colorado has approved 739 of these indoor grow farms over the past
two-plus years after vetting their owners' finances and requiring the
buds be tracked on high-definition video and bar-coded every moment
from seed to sale. Local building inspectors have signed off, and cops
- - city, state and federal - can drop in at any time.

This out-in-the-open marijuana is the best glimpse of the strange new
reality coming soon to Washington state.

If Washington, as expected, follows Colorado's experiment, our state
regulators will be investigating entrepreneurs' finances for links to
organized crime and keeping steady watch over leakage to the black
market - even as they allow warehouses of weed.

The challenges are immense. Washington's new marijuana law, approved
by voters in November, creates a market for social use - vastly bigger
than the medical-marijuana market regulated in Colorado. There is
nothing like it anywhere.

In Colorado, regulators had to broker a shotgun marriage between law
enforcement and marijuana dealers. Anxious state regulators wrote more
rules than they could enforce. The state is now thinning its thick
rule book, even as drug cops say Colorado-regulated marijuana has
popped up across the Midwest.

Capitalism unleashed, medical marijuana suddenly became a $200 million
industry, with retail prices - averaging about $7.50 a gram - among
the cheapest in the country.

The federal government - despite its ban on marijuana - has largely
been hands-off. Not a single big grow operation has been raided. It's
not clear how the Justice Department will react to the massive,
voter-approved expansion of social-use markets in Washington and Colorado.

Colorado Gov. John Hickenlooper, the grandson of a bootlegger, said
regulations need to address teen use while acknowledging consumers'
"huge appetite" for an increasingly potent drug.

"This is not your father's marijuana," he said.

'Twice as strict as alcohol'

Colorado's one-of-a-kind system arose through necessity.

In 2000, it joined Washington in allowing medical marijuana, but it
wasn't until 2009 that Denver, like Seattle, began seeing wildcat
marijuana dispensaries popping up across the city.

Then-state Sen. Chris Romer, son of a former governor, in 2010 pushed
through medical-marijuana regulations envisioned to be "as strict, if
not twice as strict, as alcohol."

Five-figure licensing and application fees - plus security and
requirements that dispensaries grow most of their own product - added
up to $500,000 or more. That was intentional, Romer said.

"If you raise the bar high enough, they won't risk their $500,000 or
million-dollar investment to sell to youngsters," said Romer.

With a new law in place, a retired liquor regulator and one-time drug
cop, Matt Cook, was brought in to broker a five-month negotiation that
"had drug dealers on one side, law enforcement on the other, and my
staff in the middle," he said.

Cook had one primary goal: no "diversion" of marijuana spilling from
regulated grows onto street corners.

The result was a blizzard of rules: 24-7 video surveillance in grow
farms and dispensaries accessible to enforcement officers via the
Internet; bar codes on each plant; criminal background checks; and
hard-copy manifests faxed to Cook's staff each time a pound of pot was
moved.

"The process works," said Cook, who retired and is now a consultant to
the medical-marijuana industry. "It sort of set the example for the
rest of the nation. This commodity won't go away. And it can be regulated."

Washington lawmakers tried to replicate the system in 2011, but Gov.
Chris Gregoire vetoed the bill, citing the remote risk that state
employees could be charged with violating federal law.

Colorado skipped right over that.

Colorado's 2.9 percent state sales tax last year generated $5.3
million from medical-marijuana sales. Cities, which can impose huge
licensing fees and extra sales taxes, have reaped far more. Dispensary
owners say they pay federal income tax, often at high rates because
their businesses do not qualify for many deductions.

With all the marijuana and money out in the open, theories abound
about why federal authorities haven't intervened. Most cite Colorado's
role as a swing state in presidential elections and the fact its own
regulators - not federal drug cops - are called to handle problem
dispensaries.

"All of the arguments used, to do a half-assed regulatory system, are
based on the fear of the feds," said Romer. "I understand that. But
the greater risk here is a use by younger users because (of) a lack of
controls."

'That's a lot of marijuana'

Denver Relief's grow site, in a nondescript warehouse in northeast
Denver, is a midsized operation by local standards, but would be the
Taj Mahal by Seattle standards: 2,000 plants, 13,000 square feet,
62,000 watts of power and 2,000 gallons of filtered water a day.
Build-out costs were $500,000, including the site's own
transformer.

Up close, flowering marijuana plants look like Frankenflowers,
genetically filtered into strains such as Romulan or Red Headed
Stranger to produce plum-sized buds dangling from spindly stalks. The
dispensary was one of the first amid the Colorado medical-marijuana
land rush of 2010. More than 1,800 budding entrepreneurs, some pushing
shopping carts full of documents, lined up at Cook's office, dreaming
of getting a state license to grow or sell pot.

To get one, applicants had to waive their Fourth Amendment right to
limitations on search and seizure: regardless of state law, the
business is illegal under federal law. They also had to disclose years
of bank statements.

"I think a lot of the info they required weeded out a lot of people
who would have been bad for the industry," said Kayvan Khalatbari,
co-owner of Denver Relief.

It is a tightly competitive market, with more than 520 dispensaries
and 150 processors of cannabis-infused food statewide. The industry
leases an estimated 1 million square feet in the Denver area, with
some grow sites having as many as 10,000 plants.

Still, all this would be dwarfed by Washington's new marijuana
market.

The state predicts 363,000 consumers will go through 187,000 pounds of
dry marijuana a year in Washington. But that estimate may be way low -
it fails to include production needs for marijuana-infused food and
drinks; in Colorado, about half of the marijuana produced goes toward
so-called "medibles."

By Khalatbari's calculations, Washington would need about 1,000 grow
sites the size of Denver Relief. "Wow, that's a lot of marijuana," he
said.

It is "naive" to think that any rules Washington may create will keep
that much bud from leaking into the black market, said Colorado
Attorney General John Suthers, a Republican ex-federal prosecutor.

He and other opponents say the Mile High State has become a bulk
exporter: a recent report documented cases of state-regulated
marijuana finding its way to 23 other states. Suthers' office is
pressing a racketeering case against the owners of a local dispensary,
The Silver Lizard, for selling hundreds of pounds as far away as Florida.

Recreational use will only make it worse, Suthers fears, and sends a
"terrible" message to teenagers.

"We're in a cultural collapse, in my opinion. But I'm an old fogey,"
said Suthers. "The industry would call me a drug-war dinosaur."

Preparing for legal sales

In theory, Colorado's Medical Marijuana Enforcement Division was to
have dozens of regulators so vigilant that every plant could be
tracked, in person and on camera, from seed to sale.

But that ambition gave way to financial reality. The agency overspent,
then had to cut staff; now there are 10 regulators for a $200 million
industry. Shipping manifests, spit from a state fax machine, have gone
unread, and more than 860 license applications still need to be vetted.

"Sometimes it feels like the division bit off more than it could chew,
truly looking over the shoulder of the licensee at every step of the
way," said Laura Harris, who took over the enforcement division a year
ago.

Her agency is now simplifying rules with input from industry leaders
such as Norton Arbelaez, an attorney who runs River Rock, one of the
largest dispensaries in the state. He said his company pays $1 million
in taxes, with top-end growers earning $100,000.

"The free market has done a good thing," said Arbelaez. "Isn't that
better than operating in the shadows? ... Isn't it better for the city
of Denver that revenue from medical marijuana funds the
parks?"Colorado, like Washington, is just starting work on the
social-use market. Both states plan to open retail stores in about a
year.

Rick Garza, deputy director of the Washington State Liquor Control
Board, said his agency first needs some basic numbers: How many
customers will there be? Is it 363,000, as the state once estimated?
Or will more people dabble, now that it's legal under state law? And
how much will they consume? About a half-pound, on average, as the
state predicted? Or double that, as Colorado's medical-marijuana
patients do?

"Once you get a feel for what that market looks like, it drives
everything else," said Garza.

Both states are plowing ahead, but also awaiting a response from the
U.S. Justice Department to letters and personal appeals from
Hickenlooper and Gregoire seeking clarity. In an interview with ABC in
December, President Obama indicated the Justice Department would not
arrest recreational users, but did not say how it would deal with
large grow farms and heavily taxed sales.

Left alone, Washington's market is likely to be governed by a blend of
Colorado's medical-marijuana rules and its own liquor regulations. "I
suspect we'll use many of the requirements we do with liquor," said
Garza.

Once the rules firm up, expect to see a new land rush from
entrepreneurs like Tripp Keber, founder of Dixie Elixirs, a medibles
manufacturer. Once a developer of luxury motor-home resorts, Keber
decided to get into medical marijuana while at a card table in Las
Vegas, and he keeps a pair of red dice in his pocket.

His 27,000-square-foot production space near the Denver airport has 35
employees, including a biochemist, a chef and a mechanical engineer.
It churns out 70 different products, including 175 cases of his
signature THC-infused sodas.

Preparing for legal recreational sales in Colorado and Washington, his
company bought a $200,000 extraction machine to expedite a process now
largely done by hand.

"If you don't believe that big alcohol, Big Tobacco, Big Pharma are
watching this, you're crazy," said Keber.

"There is no medical-marijuana book for dummies. Given the chance to
buy it, I would have, and saved thousands and thousands of dollars."
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MAP posted-by: Matt