Pubdate: Mon, 10 Dec 2012
Source: Los Angeles Times (CA)
Copyright: 2012 Los Angeles Times
Contact:  http://www.latimes.com/
Details: http://www.mapinc.org/media/248
Author: Kim Murphy
Page: A1

A LEGAL HAZE CLOUDS WASHINGTON'S POT LAW

SEATTLE - Customers have been drifting into Jay Fratt's alternative 
pipe and tobacco shop, Smokin J's, in the days since Washington 
state's marijuana law took effect, wondering when cannabis would take 
its place on the shelves next to the handblown glass pipes.

Hold on, he told them. Fratt is, before anything else, a businessman, 
and he quickly realized there was a lot of smoke in the details.

First of all, the law setting up the nation's first legal regulatory 
system for retail pot won't allow sales until next year. And the 
federal government still considers marijuana illegal.

Then there are the taxation provisions: Can legal retailers compete 
with the black market when they have to pay over 25% in taxes? What 
about the provision that says marijuana shops can't stock anything 
but pot and pot supplies? What would happen to the Vancouver, Wash., 
shopkeeper's tie-dye baby jumpsuits, his "Stoner" trivia games, his 
meditating Buddha tapestries?

The euphoria that accompanied the debut of the initiative making it 
legal in Washington for adults to possess an ounce or less of 
marijuana faded shortly after midnight Thursday, when about 150 
people gathered at the base of the Space Needle in Seattle to toke up 
in celebration.

By Friday morning, the bureaucrats, the lawyers and the suits from 
Wall Street were pulling into town as state regulators began setting 
up what could become a $1-billion industry, built precariously on a 
product whose possession the federal government considers a felony.

State officials estimate that pot will soon be selling legally for 
about $12 a gram, with annual consumption of 85 million grams - a 
potential bonanza in state tax revenue of nearly $2 billion over the 
first five years.

"I'm telling my clients, if I had a collective and I knew that 
legalization was coming and I knew they were going to be licensing 
people and I was already in the business, I'd be one of the first 
people going to apply for a license," said Jay Berneburg, a Tacoma, 
Wash., lawyer who held a seminar about getting into the retail trade.

"You could make a million dollars in five days. There's going to be 
people lined up to buy marijuana, just because they can," he said.

Venture capitalists are moving in. Brendan Kennedy and Michael Blue, 
two Yale University MBA graduates with backgrounds in Silicon Valley, 
have raised $5 million through their private equity firm, Privateer 
Holdings, believed to be the first in the nation to focus strictly on 
marijuana-related companies.

"We realized this was and is the biggest opportunity we think we'll 
probably see in our lifetimes," Blue said.

Their first acquisition was Leafly.com, a website that rates strains 
of marijuana for their medicinal properties. Users can plug in their 
ZIP codes and find out which products available in their areas 
produce the effects they're looking for, from "giggly" to the ability 
to treat migraines.

Vaporizers are another product they're looking at - anything that 
doesn't directly involve buying or selling marijuana.

Privateer is offering investors the chance to make money in an arena 
most venture capitalists can't touch under standard partnership 
agreements, which normally spell out that investments not in 
compliance with federal law are prohibited. That means, they figure, 
an opportunity for stunning profits with little competition from 
other investment firms - though one has to listen to a lot of Bob 
Marley at trade shows.

"I've studied a lot of industries. I've never seen one that had this 
unique set of circumstances," Kennedy said. "It's highly fragmented, 
it's very unstructured, there's no leaders, there's no standards. The 
entire topic is taboo, and there's no involvement by Wall Street ... 
which is a unique opportunity, right?"

The state Liquor Control Board is asking for a staff of 40 to help 
set up a network of possibly 300 or more state-licensed retail 
stores. The board must also figure out how to regulate growers and packagers.

That process will take much of the next year. Though it has been 
legal since Thursday for adults to use small amounts of marijuana 
away from public view, they can't buy it, sell it or grow it until 
regulations are in place. Exemptions remain for medical users under 
existing law.

"Nowhere in the nation, or in the world, have they set up a 
regulatory system for recreational marijuana use. I think that's 
where we're kind of charting new ground," said Pat Kohler, director 
of the board.

"There will have to be a set of regulations set up on how much they 
can grow, what kind of security they need to have, can they grow it 
indoors - all these things need to be discussed."

In part, Kohler said, Washington will be looking to Colorado - where 
voters approved a similar statute that goes into effect in January - 
which has in place regulations for medical marijuana more 
comprehensive than Washington's laissezfaire approach.

She said it would also be logical to model regulations on rules 
governing the liquor industry. Until this year, when alcohol sales 
were privatized, hard liquor in Washington was sold at state-licensed 
stores that, like those to be set up under the marijuana law, sold 
nothing but alcohol under tight regulation and taxation.

For Fratt and other potential pot entrepreneurs, the idea has allure 
but is also fraught with peril.

One big concern is that taxation - a 25% excise tax on each wholesale 
and retail transaction, along with sales and business and occupation 
taxes - will boost the price so high that a cheaper black market will persist.

An even bigger worry is that the federal government will step in and 
shut down the new industry. The Justice Department said last week 
that it was reviewing the laws in Washington and Colorado and warned 
that growing, selling or possessing any amount of marijuana remained 
illegal under federal law.

"If you take someone like me who's been doing business for 15 years 
and knows how to pay taxes, does everything on the straight up and 
up, naturally the state would want somebody like me to get into that 
business. But without federal assurances, there's no way someone like 
me would be interested," Fratt said.

Also problematic is the strict standard for driving under the 
influence, which already has been challenged in court. A judge Friday 
declined a request to suspend the law until that's resolved, but 
critics have said they will press their case, arguing that under 
existing rules a driver could be subject to arrest days after smoking a joint.

Berneburg, the Tacoma lawyer, said that while he was advising his 
clients to apply for a license, he was also telling them not to 
expect any gold-rush profits to last for long. The novelty will wear 
off, he predicts.

"You take away the outlaw mystique, and people won't want it 
anymore," he said. That's why some entrepreneurs are hoping to cash 
in on business from outside Washington state, where marijuana retains 
the charm of forbidden fruit.

A new startup in the southern town of Camas, Wash., Washington 
Freedom Tours, is offering "the first legal cannabis freedom tour in 
the United States" and has three bookings, owner Robert Flatt said.

"We're getting emails from Italy, France, the U.K.," Flatt said. "It 
seems like there's going to be an international interest in coming to 
the free state of Washington."

Trips include a journey through the Columbia River Gorge and a wine 
and cheese tasting in a private residence featuring, of course, 
organically grown Northwest cannabis.
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