Colorado Offers Window Into MMJ Industry

May 25, 2013

At Leela Euro­pean Café, a quirky, 24-hour cof­fee shop and bar in the heart of down­town, a bar­tender was quick with her thoughts on Colorado’s expe­ri­ence with the legal sale of med­ical mar­i­juana. “It’s really easy to get,” said Cara Wanek, 25, who says she uses it to calm her anx­i­ety, boost her appetite and help her sleep. “And it’s deli­cious.” That’s exactly what Illi­nois is try­ing to avoid. While Col­orado is not quite the Wild West of med­ical mar­i­juana, it offers a win­dow into the oppor­tu­ni­ties and con­se­quences that arise when a state allows the legal sale of a long-banned drug. The state’s ther­a­peu­tic cannabis indus­try launched in earnest in late 2009, trig­ger­ing a “green rush” that boosted the state’s econ­omy. Big Mar­i­juana added thou­sands of new jobs, revi­tal­ized aging indus­trial ware­houses and shut­tered store­fronts, and gen­er­ated mil­lions of tax dol­lars for the fed­eral, state and local gov­ern­ments. At the same time, state offi­cials acknowl­edge they were unpre­pared to license, inspect and reg­u­late med­ical mar­i­juana busi­nesses, leav­ing mil­lions of fees and taxes uncol­lected and a sig­nif­i­cant swath of the indus­try unchecked. And recently released police data show a mod­est uptick in cer­tain crimes near mar­i­juana busi­nesses in Den­ver. But as the nation’s first highly reg­u­lated, for-profit mar­ket, Col­orado has served as a model for other states seek­ing to get in on the action. In craft­ing leg­is­la­tion that would allow for the legal sale of the drug to cer­tain patients begin­ning in 2014, Illi­nois law­mak­ers looked to build upon the expe­ri­ence in Col­orado, where pretty much any­one with a long-ago injury can get a doctor’s approval to pur­chase up to 2 ounces of pot at a time — enough to stuff two small sand­wich bags. Illi­nois’ pro­posed statute is far more restric­tive, plac­ing tighter lim­its on who can legally pur­chase the drug and where it can be grown and sold. The bill, which would allow peo­ple with 42 defined con­di­tions to pur­chase the drug legally over a four-year trial period, was approved by the Sen­ate on May 17. It awaits the sig­na­ture of Gov. Pat Quinn, who has said he is “open-minded” about the prospect. As the gov­er­nor con­tem­plates a deci­sion, expe­ri­enced pot entre­pre­neurs in and around Den­ver are watch­ing closely with the hope that the time and money they’ve spent shap­ing and sup­port­ing the Illi­nois bill will pay off. “Every­one is look­ing at Illi­nois and New York because that’s where the pop­u­la­tion is,” said Kay­van Kha­lat­bari, a 29-year-old Nebraska native who was one of the pio­neers in the Den­ver mar­i­juana scene. “The ball is rolling, and with more and more states com­ing on all the time, we see oppor­tu­ni­ties every­where.” If Quinn signs the bill, Illi­nois would become the 20th state, plus the Dis­trict of Colum­bia, to allow the sale of med­ical mar­i­juana. Dis­pen­saries could open as soon as next year. In Col­orado, legal­iza­tion of the drug for med­i­c­i­nal pur­poses was approved by vot­ers in 2000. But because the drug remained ille­gal at the fed­eral level, most users remained under­ground, grow­ing as many as six plants each for their own med­ical needs. The indus­try didn’t emerge until 2009, after an Obama admin­is­tra­tion memo sug­gested that fed­eral author­i­ties would not aggres­sively chal­lenge state laws. Almost overnight, Col­orado was swamped with retail dis­pen­saries and large-scale oper­a­tions to grow the plants. The state, which didn’t have an ade­quate reg­u­la­tory or tax struc­ture in place, soon had more weed shops than Star­bucks. By the next spring, when law­mak­ers scram­bled to pass reg­u­la­tions, more than 2,000 com­pa­nies had filed with the state to sell med­ical mar­i­juana. “We didn’t get off to a great start because we didn’t have the time or the staff to tool up,” said Ron Kam­merzell, the Col­orado Depart­ment of Revenue’s enforce­ment direc­tor. “We’re still, in a way, play­ing catch-up.” At the end of 2010, the first year of reg­u­lated med­ical mar­i­juana in Col­orado, the state’s indus­try had more than 1,100 busi­nesses, includ­ing dis­pen­saries and man­u­fac­tur­ers of marijuana-infused prod­ucts, accord­ing to state sta­tis­tics. Today, there are 675. “A major­ity of the peo­ple who came in in 2009 to make a quick buck are either broke or in jail,” said Nor­ton Arbe­laez, a tall, loqua­cious Okla­homa native who prac­ticed med­ical mal­prac­tice law in Louisiana before he and a friend founded River Rock Well­ness, a two-store med­ical mar­i­juana oper­a­tion in Den­ver. “There were a lot of bozos in this busi­ness in the begin­ning,” Arbe­laez said. “For the most part, those of us still around are the ones who are doing it right.” In the roughly three years since the reg­u­la­tions took effect, sales have bal­looned to nearly $200 mil­lion, gen­er­at­ing $5.4 mil­lion in state sales tax in 2012. In addi­tion, oper­a­tors have paid the state more than $10 mil­lion in appli­ca­tion and licens­ing fees. The most suc­cess­ful of Colorado’s 479 reg­is­tered retail dis­pen­saries log annual sales greater than $3 mil­lion. Kay­van Khalatbari’s ven­ture, Den­ver Relief, started with $4,000 and a half-pound of mar­i­juana. Wedged between a salon and an urgent care cen­ter on Denver’s near south side, the 25-employee oper­a­tion expects sales of $1 mil­lion to $2 mil­lion this year. It has made money from day one, Kha­lat­bari said. But even as the legal sale of the drug emerged from rogue grow­ers’ base­ments, retail own­ers and grow­ers said they still oper­ate in an envi­ron­ment of fear. Because state laws run counter to a 43-year-old fed­eral law that clas­si­fies cannabis as a Sched­ule 1 con­trolled sub­stance, com­pa­nies say they face hur­dles that other busi­nesses typ­i­cally don’t encounter. Bank­ing is dif­fi­cult, insur­ance is hard to come by, and oper­a­tors fret that their nascent enter­prises could be shut down at any time by fed­eral reg­u­la­tors. Oper­a­tors say most banks won’t lend to enter­prises that han­dle a prod­uct that is ille­gal under fed­eral law. As a result, the vast major­ity of Colorado’s mar­i­juana enter­prises are financed solely with their own and pri­vate investors’ money. Many lack busi­ness bank accounts and pay all of their bills — work­ers’ pay­checks, util­i­ties, con­trac­tor fees and mort­gages — with cash or money orders. Another issue is taxes. On aver­age, small busi­nesses pay an effec­tive tax rate of about 20 per­cent on net income, accord­ing to the Small Busi­ness Admin­is­tra­tion. Mar­i­juana pur­vey­ors, by con­trast, say they pay an effec­tive tax rate of 60 to 70 per­cent. That’s because the fed­eral tax code pro­hibits the deduc­tion of stan­dard busi­ness expenses for those who deal in con­trolled sub­stances — mar­i­juana included — even in states where it is legal. “It’s a very heavy-overhead busi­ness that requires a lot of cap­i­tal,” said Rhett Jor­dan, co-owner of Native Roots Apothe­cary, an upscale med­ical mar­i­juana shop on the 16th Street Mall, Denver’s answer to Michi­gan Avenue. Inside the spa-like shop, 30 air­tight glass jars filled with buds sit behind a counter. A “bud-tender” helps patients choose the prod­uct best suited for their ail­ment. Choco­lates, can­dies, tinc­tures and tiny jars filled with con­cen­trated cannabis, called hashish, are arranged much like jew­elry inside a glass case. Cam­eras are every­where. Cus­tomers range from local busi­ness mag­nates to musi­cians and con­struc­tion work­ers. Jor­dan, who said he has rel­a­tives in Illi­nois, has a keen inter­est in open­ing a dis­pen­sary in Chicago. If and when Illi­nois opens the door to med­ical mar­i­juana, weed retail­ers like Native Roots will face a much dif­fer­ent reg­u­la­tory envi­ron­ment. The num­ber of dis­pen­saries will be lim­ited to 60 statewide and the num­ber of grow­ers to 22, one for each state police dis­trict. Illi­nois also will be more restric­tive on what dis­eases can be treated with med­ical mar­i­juana. Of the roughly 108,000 Col­oradans who hold state-issued med­ical mar­i­juana cards, more than 101,000 reported using cannabis in part to treat “chronic pain,” a catchall cat­e­gory that will not be rec­og­nized in Illi­nois. While the tighter restric­tions in Illi­nois likely mean a smaller pool of poten­tial cus­tomers, indus­try vet­er­ans in Col­orado are con­fi­dent the law even­tu­ally will loosen. Col­orado law, just like the one pro­posed in Illi­nois, requires grow­ers to raise their plants indoors, under tight secu­rity. Installing robust secu­rity sys­tems, which include high-definition cam­eras, auto­mat­i­cally lock­ing doors and shock sen­sors, can cost more than $100,000. The state’s mar­i­juana cul­ti­va­tion cen­ters range in sophis­ti­ca­tion, secu­rity, employ­ment and qual­ity of prod­uct. Some have a thou­sand plants; some have more than 30,000. Most are grown indoors in mod­i­fied ware­houses; some use green­houses sur­rounded by 10-foot-high elec­tri­fied fences. To pre­vent theft and diver­sion of the prod­uct to the black mar­ket, oper­a­tors are required to invest in sophis­ti­cated soft­ware that tracks the plant from “seed to sale,” a Col­orado man­date that Illi­nois’ leg­is­la­tion adopted. Each crop, on aver­age, takes about four months to grow. Monthly elec­tric bills range from $3,500 to more than $15,000. The retail value of the inven­tory inside can eas­ily stretch to sev­eral mil­lion dol­lars. The plants are finicky and prone to mold and mildew, so tem­per­a­ture, humid­ity lev­els and air cir­cu­la­tion are closely reg­u­lated. Some oper­a­tors grow their plants hydro­pon­i­cally, some pre­fer dirt, and oth­ers such as Gaia Plant-Based Med­i­cine use a dirt­like prod­uct made of crum­bled /coconut husks. The company’s indoor cul­ti­va­tion cen­ter, a single-story brick build­ing with barred win­dows, sits across the street from a Den­ver Police Depart­ment out­post in an indus­trial area on the north­east side of town between the air­port and down­town. A few years ago, many of the aging build­ings here were empty. Today, they’re the head­quar­ters for met­ro­pol­i­tan Denver’s mar­i­juana grow­ers. The fra­grant, unmis­tak­able aroma of pot plants wafts down the street. “If you look all around Den­ver, we came in and rented unde­sir­able spaces,” said Meg Sanders, Gaia’s co-owner and chief exec­u­tive. After Gaia opened a retail dis­pen­sary in east Den­ver, a Star­bucks and a gro­cer moved in, Sanders said. “It becomes a hub.” Anec­dotes like this abound in Den­ver, run­ning con­trary to what many feared would hap­pen to their neigh­bor­hoods once the mar­i­juana indus­try moved in. Visions of drug-addled ston­ers and nefar­i­ous push­ers flood­ing the city’s streets never mate­ri­al­ized. Two Den­ver City Coun­cil mem­bers and the head of the Den­ver Metro Cham­ber of Com­merce said com­plaints to their offices about mar­i­juana dis­pen­saries and grow­ing oper­a­tions are rare. Colorado’s med­ical mar­i­juana exper­i­ment has gone well enough, in fact, that vot­ers in Novem­ber were embold­ened to push for­ward another con­sti­tu­tional amend­ment that will allow any­one 21 or older to buy the drug for recre­ational or “adult use” pur­poses as early as 2014. It rep­re­sents a major oppor­tu­nity for Sanders, 47, who left the finan­cial world in late 2010 to ride the mar­i­juana wave. Inside her dis­creet cul­ti­va­tion cen­ter, a Zen-style front wait­ing room makes way to an open ware­house, where tat­tooed work­ers trim mar­i­juana plants, sep­a­rate leaves from flow­ers and weigh prod­uct. One-thousand-watt sodium lights cast a bright glow through ajar doors that lead to sep­a­rate grow rooms. Sanders had just returned from Illi­nois, where she spent time in Chicago meet­ing with poten­tial grow­ers and retail­ers and a day in Spring­field to “help with the leg­isla­tive process.” She wants to ensure Illi­nois doesn’t make the same mis­takes as Col­orado, and that those who par­tic­i­pate in the indus­try can learn from her company’s ini­tial strug­gles. When she and other investors took over Gaia two years ago, it was hem­or­rhag­ing money. The com­pany finally turned the cor­ner and became prof­itable this quar­ter, she said. For the full year, the three-store com­pany projects rev­enue of $5 mil­lion to $7 mil­lion. “It’s been far more chal­leng­ing than any­one thought because the rules kept chang­ing,” Sanders said. But with more than $3.5 mil­lion of their own money financ­ing the ven­ture, she and her investors remain bull­ish. “There are few other indus­tries that have insa­tiable demand,” she said. “Every sin­gle prod­uct we put on the shelves is sold each month. It pays for itself very quickly, and that’s what makes it so appeal­ing.” Source: Chicago Tri­bune (IL) Author: Peter Frost, Chicago Tri­bune Reporter Pub­lished: May 26, 2013 Copy­right: 2013 Chicago Tri­bune Com­pany, LLC Web­site: http://​www​.chicagotri​bune​.com/

1132c4bd4clorado.jpg 150x115 Colorado Offers Window Into MMJ Industry

Orig­i­nally posted here:
Col­orado Offers Win­dow Into MMJ Industry

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