Pubdate: Thu, 28 Mar 2013
Source: Chicago Tribune (IL)
Copyright: 2013 The Washington Post
Author: T.W. Farnam, The Washington Post
Page: 1B


In Colorado, It's High Rents, Wary Banks and Fear of a Federal Bust

DENVER - The pot industry in Colorado is undergoing a massive 
makeover as it prepares to begin selling marijuana legally for 
recreational use 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.

Even after Coloradans voted in November to legalize marijuana, 
would-be pot producers and retailers have 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 Senate Judiciary Committee hearing this month, Attorney General 
Eric Holder said that he would soon announce a response to the 
initiatives in Colorado and Washington last year legalizing pot. The 
federal government, which deems marijuana a controlled substance, 
could upend the plans of Colorado entrepreneurs at any moment.

Kristi Kelly, 35, went into business three years ago, selling 
marijuana for medical purposes, which was allowed by Colorado. She 
now runs three stores and two industrial indoor gardens that 
constitute her Good Meds company.

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, wearing hooded sweatshirts and 
dreadlocks while trimming dried marijuana plants. Jimi Hendrix played 
in the background.

She led the way through one of her "grow facilities," a 
65,000-square-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. A Washington, D.C., native, 
Kelly has a high-energy demeanor. 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 businesspeople."

Still, this isn't business as usual. 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 store in Lakewood, a Denver suburb, a 2-ton safe is bolted to 
the floor behind the counter that holds a dozen gallon-size jars full 
of cannabis. With a prescription, you can buy marijuana in just about 
any form in this store: rolled into joints, filling an ecigarette 
cartridge, baked into chocolates and cheesecake cupcakes, or 
concentrated in Cannacap pills, lemon drops, 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's also spent 
thousands of dollars upgrading 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 its income taxes were paid.

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.

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

The federal Drug Enforcement Administration is watching Colorado but 
has yet to intervene in a dramatic way. Federal policy on marijuana 
businesses will likely be fluid for some time, and disruptions in the 
marketplace may yet come.

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