Pubdate: Sun, 19 Jan 2014
Source: Herald, The (Everett, WA)
Page: A1
Copyright: 2014 The Daily Herald Co.
Authors: Chris Winters and Amy Nile


For A Fledgling Industry Facing Legal Ambiguities And Reluctant Banks,
Uncertainty Is The Rule

EVERETT - Shawn Scoleri has some complaints about chafing government
regulations. Scoleri is in the marijuana business, however, and the
regulations are a lot tighter than for other businesses. They've also
raised a different set of concerns for those seeking to break in to a
new industry.

Scoleri, of Everett, runs a medical marijuana dispensary in Seattle.
He has applied to operate marijuana production and processing
businesses in Snohomish County and elsewhere under Initiative 502.

For pot businesses, uncertainty rules and the rules are

The ground rules keep shifting as the industry ramps up. On Thursday,
state Attorney General Robert Ferguson issued an opinion that said
local jurisdictions can ban marijuana businesses or zone them so
strictly as to make them impractical.

Snohomish County has taken a different approach, enacting zoning rules
for marijuana businesses that seek to balance the intent of I-502 and
the needs of communities, while addressing some of the ambiguities
those businesses face in other jurisdictions.

Some ambiguities are unlike those faced by any other business. For
example, Scoleri said, how many business owners would sign a lease and
pay rent for a 30,000-square-foot warehouse not knowing whether
they'll be allowed to use all of it?

How about setting up a business bank account, knowing that the bank
could at any time decide to close it without advance notice because
federal authorities consider handling money from drug sales to be
money laundering?

Or starting a wholesale company knowing that the competition for a
market, already extremely tough, will be further restrained by a fixed
number of retail outlets?

"Anyone in my situation would feel exposed," Scoleri

While retail outlets are more visible and capture a lot of attention,
their number is capped at 334 statewide by the state Liquor Control
Board, the agency charged with regulating the new pot industry. There
is no limit on the number of growers and processors in the state,
however, and as of Jan. 14 the board had counted 2,817 producer

Of those, 247 have been filed from Snohomish County, the
second-highest number in the state after King County's 484

But Snohomish County's number amounts to a 28 percent higher
license-per-capita rate than King County's, and friendlier zoning
regulations are probably a significant reason for that.

So uncertain is the environment for pot businesses - including its
status as an activity that still carries a stigma - that of more than
30 license applicants The Herald attempted to contact, most did not
return calls or declined to comment for the record.

A sampling of people who have applied for marijuana licenses in
Snohomish County reveals a broad spectrum of society:

A longtime nursery owner looking to diversify the crop mix on his
farm; A single mother of two; A real estate and finance consultant who
sees a lucrative financial opportunity in a growing and processing

The owner of a medical marijuana dispensary who likes to post on
Facebook artfully composed photos of his glass bong in scenic outdoor

A hotel owner who was just curious about getting into the industry,
but who withdrew her application after realizing she couldn't use the
hotel bar as a retail marijuana location.

In addition to the legal ambiguity, other aspects of the regulations
pose problems for would-be "green" entrepreneurs.

Marcus Edwards, the chief operating officer of CannaGenesis, which is
seeking growing and production licenses in the Stanwood area and
Spokane Valley, said finding a warehouse for growing operations has
been difficult.

Many landlords are being deluged with phone calls.

"We've had far more nos than yeses," Edwards said.

Some landlords are concerned about technical issues, such as humidity
and rust. Others cite legal reasons.

"People are afraid of the government coming in and seizing their
property," Edwards said. This, in spite of assurances that the federal
government wouldn't intervene in a tightly regulated market.

Another area of concern is the 2 million-square-foot total canopy
limit on the amount of marijuana allowed to grow in the state. If the
square footage of the total number of approved licenses exceeds that
amount, the Liquor Control Board will reduce the size of all the
licenses. Someone who applies for the largest "Tier 3" license, with a
30,000-square-foot limit, may find themselves approved for only a Tier
2 license, which is capped at 10,000 square feet.

Adam Bluff of Seattle has applied for a large growing site in Monroe.
His company, Harmony Farms, also has applied for licenses in Chehalis
and Lacey.

Bluff is a general contractor who has built grow rooms for the medical
market. Securing real estate remains difficult because he doesn't know
how much space he'll need.

Another issue several growers mentioned was the unwillingness of banks
to work with marijuana companies.

John Knutsen, a businessman who operates several companies unrelated
to pot, has applied for a 30,000-square-foot growing license outside
Snohomish. He's worried about running a cash-based business. His bank
has refused to work with his marijuana startup.

"We're going to take socially responsible people and say you can't run
your business through the regular economic system?" he said.

Carrying large amounts of cash could make his operation a target for
crime, Knutsen said.

In addition, businesses will have to pay the state 25 percent excise
tax on every pot transaction, from plant to packaging to retail sales.

Scoleri predicts these challenges will foster brutal competition,
causing the bottom to drop out of the wholesale market and prices to
plummet. Many people will be put out of business.

"I think the way Liquor Control has written their rules at this time,
they're setting up a fair number of people for failure right out of
the gate," Scoleri said.

The Liquor Control Board's Brian Smith said the large number of
license applications took the board by surprise. The expectation is
that nearly half of the businesses will die within 18 months.

Scoleri is someone who could be considered an industry veteran. He
said he's been in the marijuana business for 16 to 18 years, starting
when his father used the drug to manage pain after an organ
transplant. He doesn't smoke pot himself, he said.

He's had run-ins with the law, pleading guilty in 1997 to a gross
misdemeanor charge for possession of a controlled substance
(testosterone), and facing felony charges in 2001 (which were
subsequently dropped) for allegedly running a marijuana growing
operation and stealing electricity from the Snohomish County PUD.

Scoleri's conviction was long enough ago that it won't count against
him in the state's pointbased system for evaluating applications.
Outside of traffic tickets, his record has been clean for the past 13

Staying legitimate in the pot business has been his objective, from
paying sales taxes from his medical marijuana dispensary to trying to
set up a growing operation that will operate completely within the new

Scoleri said the survivors will be those who offer a higher volume of
product while managing their costs most effectively.

One of his strategies is to erect buildings where several different
growing operations could locate under one roof - although walled off
from each other in compliance with the law.

Scoleri also plans on constructing high-ceilinged grow rooms, where
more plants can be raised on shelves without increasing the total
canopy area.

Jack Remington, a Seattle resident, has applied for a growing license
and plans to locate in Scoleri's proposed Arlington-area facility.

Remington plans to run a smaller growing operation specializing in
rarer and slower-growing African and Thai varieties, rather than the
more common-variety Cannabis indica plants the larger operations will
be mass-producing, he said.

"I'll be producing less but have a more specialty product on the
shelf," Remington said.

Smaller production amounts also means he'll be better protected from
becoming saddled with surplus inventory in a market with a constrained
retail channel.

Another entrepreneur, Brian Laoruangroch of Seattle, hopes to become
the Marlboro Man of marijuana, based out of Snohomish County near Monroe.

His company, Prohibition Brands, is taking a high-profile marketing
strategy. He's produced an Internet commercial in which he appears in
cowboy getup, calling himself "Sheriff Roach" and riding a stick horse.

Whatever strategy growers hope to use in the green rush, it will play
out in a business environment unlike any the state has seen.

Uncertainty still reigns; plenty of people and jurisdictions are
anxious about marijuana entrepreneurs hanging out their shingles in
their communities.

But those already in the industry hope that will change, with
ambiguities resolved and fears abated. Already, Scoleri said, pretty
much everyone is within one degree of separation of someone who either
grows or uses marijuana.

"The thing that everyone forgets is that those types of people in your
community are your neighbors," he said.  
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