Pubdate: Wed, 19 Jun 2013
Source: Austin American-Statesman (TX)
Copyright: 2013 Associated Press
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Author: Gene Johnson, Associated Press

TROUBLE BREWING OVER MARIJUANA LEGALIZATION

Aggressive Business Plan Will Open Pot Shops That Make $120k Profit a Month.

SEATTLE (AP) - For the activists who led the effort to legalize 
recreational marijuana in Washington state last fall, Jamen Shively 
was one of their biggest fears: an aspiring pot profiteer whose 
unabashed dreams of building a cannabis empire might attract unwanted 
attention from the federal government or a backlash that could slow 
the marijuana reform movement across the country.

With visionary zeal, the 45-year-old former Microsoft manager 
described his plans to a conference room packed with reporters and 
supporters last month, saying he was tired of waiting for a green 
light from the Obama administration, which still hasn't said how it 
will respond to the legalization of recreational pot in Washington 
and Colorado. Shively vowed to quickly raise $10 million and 
eventually build his company, Diego Pellicer, into an international 
pot powerhouse.

Though he promised a "cautious and measured" expansion, Shively's 
approach nevertheless contrasted with that of state regulators who 
want to avoid repeating the national experience with Big Tobacco and 
Big Alcohol, industries that profited wildly on addiction and abuse.

Mark Kleiman, who heads the team hired to be Washington's official 
marijuana consultant, responded on his blog: "It was inevitable that 
the legalization of cannabis would attract a certain number of 
insensate greedheads to the industry."

Shively's ambitions - "We are Big Marijuana," he proclaimed - don't 
merely raise questions about what marijuana legalization might look 
like in the long run and whether large corporations will come to 
dominate. He also risks getting himself indicted.

The Justice Department has said while it doesn't intend to prosecute 
sick people for using marijuana, it will go after those who try to 
get rich from commercial sales. It hasn't said yet whether it will 
sue to block Washington and Colorado from licensing pot growers, 
processors and stores.

The legalization votes in Washington and Colorado have created a 
fever for cannabis-related investing, to an extent.

Conferences have focused on the parameters for legally investing in 
"ancillary businesses" - those that supply equipment needed by pot 
grows, for example - without financing the actual production or 
distribution of marijuana, which remains illegal under federal law.

Some companies that make high-end marijuana-infused products, such as 
Colorado-based Dixie Elixirs, are planning to make their brands 
available in other states, but it's not clear anyone else is taking 
steps to create a pot empire.

"Developing a national brand in an industry in which it is illegal to 
move the core product across state lines presents some serious 
logistical challenges," said Betty Aldworth, deputy director of the 
National Cannabis Industry Association.

Diego Pellicer's business plan estimates $120,000 of pure profit per 
month, per recreational pot store. Shively said he plans dozens of 
stores in Washington and Colorado.

At the May 30 news conference, Shively announced Diego's first 
corporate deal - an arrangement with a Seattle medical marijuana 
company called the Northwest Patient Resource Center. He said Diego 
would be starting in the medical marijuana market in Washington and 
Colorado, and then transitioning some dispensaries to recreational 
pot stores once the states begin issuing licenses.

Shively said the arrangement was "not in violation of either federal 
or state law," but it was troubling enough to one of the dispensary 
company owners that he's walking away from the deal - and the company 
he helped found - because he fears it puts everyone involved at risk 
of federal prosecution.

"I'm not an activist. I'm just a businessman," said the part-owner, 
Thomas Jun, a 42-year-old father of three. "I can't afford to do any 
federal time."

According to Shively, Diego Pellicer has acquired the option to buy 
Northwest Patient Resource Center, but does not actually own it. 
That's what gives Diego Pellicer some protection and allows it to 
position itself for the time when more states legalize pot and 
Congress changes federal laws, he said. No marijuana will be moved interstate.

"We don't touch cannabis. We don't have ownership of cannabis," he 
said. "It's not a perfect insulation or buffer, but it's the best 
possible mechanism that we can come up with."

Through his lawyer, Douglas Hiatt, Jun provided the AP with internal 
company documents, including a draft of the $1.6 million agreement 
dated May 30. The deal directs monthly payments of up to $50,000 from 
Diego be used to "to further develop and enhance NWPRC's customer 
locations and to otherwise grow its business as currently conducted." 
Former federal prosecutors say that could be seen as a conspiracy to 
violate federal law.

"It certainly would make me nervous to be involved in anything like 
this," said Laurie Levenson, a professor at Loyola Law School-Los 
Angeles and a former assistant U.S. attorney.

Shively called the draft provided to AP "an obsolete document," but 
declined to provide further details. He also declined to discuss a 
$10,000 check he wrote to the dispensary company May 27.

The deal highlights the tension between the varying degrees of 
acceptance of marijuana by the states and the outright prohibition by 
the federal government, which makes banking and other business 
functions problematic.

For example, beyond the growing and sale of marijuana constituting 
federal crimes, the movement of money related to marijuana sales 
likely constitutes money laundering.

Dixie Elixirs won't be directly involved in the growing, processing 
or sale of pot in multiple states, said Tripp Keber, its managing 
director. Instead, it will license its technical know-how and recipes 
to people in Washington or elsewhere who want to produce products 
under the Dixie Elixirs brand - and try to avoid the attention of 
federal prosecutors by adhering to state laws.

"Big public federal indictments are going to do the industry a 
disservice," Keber said.

If Shively's model is endorsed by the regulators writing rules for 
Washington's pot industry, "then we would be increasing the risk of 
intervention by the federal government," said Alison Holcomb, the 
Seattle lawyer who drafted Washington's law.
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MAP posted-by: Jay Bergstrom