Pubdate: Tue, 26 Mar 2013
Source: Washington Post (DC)
Copyright: 2013 The Washington Post Company
Contact: http://mapinc.org/url/mUgeOPdZ
Website: http://www.washingtonpost.com/
Details: http://www.mapinc.org/media/491
Author: T. W. Farnam
Page: A1

IN COLO., A GROWING INDUSTRY IS A FEDERAL CRIME

As State Prepares for Sale of Recreational Marijuana, Letter of Law 
Hinders Entrepreneurs

The pot industry in Colorado is undergoing a massive makeover as it 
prepares to begin selling marijuana for recreational use legally 
under state law. Businesses are ramping up production, and trade 
associations are cleaning up their image, anticipating what could be 
a billion-dollar industry.

But the entrepreneurs who are hoping to cash in on the "green rush" 
starting next year are struggling with the unique challenges of 
conducting a business that the federal government considers a crime.

The state's pot producers and retailers are having trouble securing 
business financing because banks won't give them loans - and most of 
the time, not even an account. State lawmakers are about to shake up 
the marketplace in unpredictable ways with regulations covering 
everything from the shape of containers to the labeling required for 
pot-laced brownies and other "infused products."

And business owners say they're anxious about the intentions of the 
federal government, which could seize millions of dollars they have 
invested or even send them to prison.

At a hearing in the Senate Judiciary Committee earlier this month, 
Attorney General Eric H. Holder Jr. said that he would soon announce 
a response to the initiatives in Colorado and Washington last year 
legalizing pot for recreational use. The federal government, which 
deems marijuana a controlled substance, could upend the plans of 
Colorado entrepreneurs at any moment.

Last year, the state's voters approved a constitutional amendment to 
"regulate marijuana like alcohol" for adults to buy in small amounts, 
building on the state's 13-year-old law allowing the sale of 
marijuana to medical patients. Under the new measure, marijuana 
stores, or dispensaries, must register with the state, but many of 
the other regulations governing pot sales are still being finalized.

Kristi Kelly, 35, began selling medical marijuana three years ago and 
plans to grow the business when recreational sales become legal in 
2014. Her Good Meds company includes three stores and two industrial 
indoor gardens.

Wearing a blue blazer and knee-high leather boots on a recent tour of 
her operation, Kelly was more dressed up than most of her customers 
and employees. Some sat on couches in hooded sweatshirts and 
dreadlocks trimming dried marijuana plants. Jimi Hendrix played in 
the background.

She led the way through one of her "grow facilities," a 
65,000square-foot garden where plants at different stages were 
segregated into different rooms by maturity.

"We have about 10 rooms that look exactly like this," Kelly said over 
the hum of a humidifier. A chain of 1,000-watt fixtures showered 
bright light on dozens of plants so heavily laden with large flowers 
that they were supported by a net. A valve on the wall periodically 
spurted carbon dioxide.

A Washington, D.C., native, Kelly has a high-energy demeanor that 
seems more at home on the East Coast than in laid-back Denver. A 
former ad agency executive who once managed accounts for government 
agencies such as the U. S. Mint, she said she deals with the 
uncertainty of operating in a legal gray area by keeping a close 
watch on risks she can control, such as security and compliance with 
state rules.

"I tend to stay as conservative as possible on as much as possible," 
Kelly said.

More than 500 businesses are already selling medical marijuana, and 
many are now preparing to burst into the new marketplace for 
recreational pot. These dispensaries sold $186 million worth of 
cannabis for medical purposes in the last fiscal year, according to 
tax receipts. The Colorado Legislative Council predicts that figure 
could rise to $920 million next year once the new constitutional 
amendment legalizing recreational sales takes effect. This estimate 
does not account for the anticipated influx of pot tourists who are 
expected to arrive in search of a Rocky Mountain high. With steep 
excise and sales taxes proposed, the industry could be a big revenue 
booster for the state.

Many of the entrepreneurs, like Kelly, have had little previous 
experience with marijuana. "We're not those Woodstock hippies who 
have had secret grows in the mountains for decades," Kelly said. 
"We're business people."

This isn't business as usual, however. The federal government has 
cautioned many banks against handling marijuana finances. Many 
smaller pot businesses have been unable to find a bank to take their 
money and must operate on a cash-only basis, creating vexing problems 
with security and accounting. Kelly said she lost four bank accounts 
last year as one institution after another said they could not risk 
doing business with her company.

"The people who are lucky enough to have bank accounts guard them 
with their lives," she said.

In her Lakewood, Colo., store, a two-ton safe bolted to the floor 
behind the counter holds a dozen gallon jars full of cannabis. With a 
doctor's prescription, you can buy marijuana in just about any form 
in this store: rolled into joints, filling an e-cigarette cartridge, 
baked into chocolates and cheesecake cupcakes, or concentrated in 
Cannacap pills, lemon drops, Cheeba Chews, hard candies and liquid 
tinctures with flavors such as orange and agave.

Kelly says she has to pay premium rent for her storefront because 
landlords are wary of marijuana businesses, considering them risky 
ventures that can attract an undesirable clientele. She has also 
spent thousands of dollars upgrading her operation's security to 
guard against thieves who could be attracted to the copious amounts 
of cannabis and cash.

Making her financial situation even worse, distributing marijuana 
isn't a legitimate business expense under the tax code, so her 
company can't deduct most of its expenses. Kelly's business lost 
money last year, she said, after paying income tax.

Nor can these retailers use many of the traditional means for 
promoting consumer goods, such as advertising. Denver bans outdoor 
ads for marijuana, and most mainstream media outlets won't run them. 
Kelly recently tried to sponsor a radio public service announcement 
about safe driving but had her money returned by the station management.

Complying with a thick and evolving book of state regulations is 
another challenge. The rules, for instance, require each marijuana 
plant to be placed under video surveillance and tracked from seed to 
sale, at times by carrying a bar code.

Many more regulations are coming. Under Amendment 64, the legislature 
must tax and oversee cannabis stores for the general public as well. 
A task force appointed by the governor this month issued 
recommendations for those laws, which must be finalized before the 
legislative session ends this spring.

Many medical marijuana business owners, including Kelly, opposed 
Amendment 64 over concern that it would upturn their growing 
businesses or prompt action from the federal government. But now she 
and many other owners see the legalization of pot as a great business 
opportunity.

And medical marijuana businesses are seeking to have the tight 
regulations they follow expanded to recreational use, deploying a 
bevy of lobbyists to work the task force and the legislature. That 
has led advocates for liberalization to complain that the industry is 
trying to limit competition. For the first year, only retailers that 
sell medical marijuana will be allowed to sell pot for recreational purposes.

Business owners counter that by tightly regulating their industry, 
Colorado has avoided the kind of federal scrutiny given to other 
states, such as California, which largely leave regulation of medical 
marijuana to local jurisdictions.

The U.S. Drug Enforcement Administration is watching Colorado but has 
yet to intervene in a dramatic way.

The agency sent letters to some Colorado dispensaries within 1,000 
feet of schools, warning them to shut their doors. Some business 
owners took that as a tacit endorsement of the state's approach.

Federal policy on marijuana businesses will likely be fluid for some 
time, and disruptions in the marketplace may yet come. For Kelly, it 
won't be the first time.

"We've changed our business plan like five times," she said.
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MAP posted-by: Jay Bergstrom