Magazine | September 16, 2013, Issue

Rocky Mountain High

Colorado experiments with marijuana

Denver, Colo. – There’s a stretch of Broadway that’s called Broadsterdam because of its medical-marijuana dispensaries. Just a block over, flanking Acoma and Bannock Streets, is a warehouse district. It’s not hard to guess which of the squat drab buildings are grow-ops (marijuana-growing operations) — they’re the ones wound in razor or barbed wire, with protruding cameras, barred windows, and extra air-conditioner units (the lights needed to grow plants make it hot in the warehouses, but the plants need cooler temperatures). Sometimes when you drive by, you can smell weed wafting in the breeze. And deep inside at least a few of those warehouses are vaults brimming with cash. Welcome to Colorado’s marijuana industry.

It’s been about nine months since Coloradans voted to legalize the recreational consumption of marijuana by adults over 21, and state lawmakers have until October 1 to figure out how to regulate the nascent industry. Retail stores are expected to be selling marijuana to anyone over 21 (including the inevitable marijuana tourists from out of state) by January 2014. And until then, the people whose livelihoods are inextricably linked to the marijuana industry — a burgeoning group that includes black-market dealers, drug-reform activists, medical-dispensary owners, and countless others — will watch, wait, and carefully navigate the emerging regulatory terrain.

It’s a situation of nigh-unprecedented touchiness. And it’s a case study in the fallout of federal overextension. Under federal law, consumption of marijuana for any reason is prohibited. But D.C. has better things to do with its finite resources than go after adults who grow pot in their basements, so the onus for keeping average Joes from smoking has been on the states. And when the states of Washington and Colorado decided to let nonviolent adults do as they please, using marijuana became de facto (though not de jure) legal there.

Good for them. Marijuana-legalization advocates have long argued that prohibition is ridiculous because — among other reasons — anyone who wants to get marijuana can. If nothing else, Colorado and Washington have given legislators in the other 48 states a chance to see what happens when libertarians have their way. And thus far, the case their examples make for marijuana legalization is pretty compelling. In fact, some of the weirdest hiccups in the whole process are the result of federal policymaking failures. (Marijuana advocates are optimistic about the long game; Illinois just legalized medical marijuana, which means that state’s sizable congressional delegation may feel pressure to reform federal policies toward the drug.)

A big part of the problem is that the federal government has a law that it can’t enforce. It’s simply not possible for Washington, D.C., by itself, to keep millions and millions of Americans from smoking marijuana. Even when all 50 states were on board with prohibition, it was impossible to keep weed from being about as accessible as organic arugula. Opponents of legalization say — quite reasonably — that what Colorado and Washington have done is detrimental to the rule of law. But having laws on the books that are unenforceable is equally detrimental. Voters in Colorado and Washington are just being pragmatic.

That pragmatism is easier voted for than implemented; it’s hard out there for a marijuana entrepreneur. But there’s “light at the end of the tunnel,” as attorney Brian Vicente puts it. He shares an old mansion in downtown Denver with a few other marijuana-legalization advocates. The building itself looks kind of like a really nice frat house run by anal-retentives; it’s clean and tidy, with a kitchen full of wine bottles and a front porch that houses plastic chairs and a bucket of cigarette butts. And it’s a nexus of sorts for Colorado’s anti-prohibition advocates.

Mason Tvert of the Marijuana Policy Project has a first-floor office that sports a framed copy of an essay he wrote in elementary school explaining that drugs are bad. And in a gabled room in the top of the building, Betty Aldworth, deputy director of the National Cannabis Industry Association, pushes the IRS to make the tax code at least remotely coherent for the owners of medical-marijuana shops. She’s got a cartoon on her desk from web comic Hyperbole and a Half that shows a stick figure under a rainbow with the caption “Maybe everything isn’t hopeless bulls***.”

Vicente, one of the primary authors of the measure legalizing recreational use in Colorado, works with numerous clients in the marijuana industry. The new regulations give current medical centers a few options, he explains: They can stay as is, they can switch over to selling only recreational marijuana, or they can get a dual license that would allow them to sell both.

Light at the end of the tunnel, indeed, but there’s one big problem that Colorado legislators won’t be able to fix: the issue of growers’ keeping cash in vaults. Most banks won’t let medical-marijuana dispensaries open accounts with them, fearing that federal officials might charge them with money laundering or a host of other violations.

#page#The problem doesn’t affect only dispensaries. Roxanne Burns owns Ultimate Hydroponics & Organics, a small gardening-supply store tucked into a little cranny of a storefront on Broadway. It’s next door to the Colorado Alternative Medicine Dispensary (and, conveniently, about a block from a Taco Bell; farther down, you can find a head shop next door to a Starbucks). Burns’s business, which she runs with her son, caters to people who grow cannabis, but it doesn’t sell anything illegal. Among close observers of Colorado’s so-called green rush, the consensus seems to be that it’s smarter to invest in stores that supply dispensaries and growers — stores like Burns’s — than in dispensaries themselves.

Ultimate Hydroponics & Organics is the kind of aboveboard mom-and-pop shop you’d think business communities would welcome. It’s a clean, bright space that kind of smells like Home Depot. Nobody breaks any laws, and two happy dogs greet customers. It could be from The Andy Griffith Show, if Mayberry had lots of residents growing weed in their basements. But Burns says that when she first started, she had significant trouble finding a bank that would let her business open an account. One banker, turning her down, said, “You’re just going to be selling to dope dealers!”

Though Burns eventually found a bank that would take her money, countless other entrepreneurs have to use unorthodox — and risky — methods to store the cash they earn. Some open holding companies, some use offshore accounts, some launder cash into bank accounts through pawnshops, and I even heard that one banks with an out-of-state credit union that has an ATM in Denver (two guys from the dispensary go to the ATM; one deposits thousands of dollars while the other watches his back). Others just lock up the cash with the plants. “This is a nightmare,” says Vicente.

And it’s a nightmare the feds could end without too much trouble. According to Josh Kappel, a lawyer who works with Vicente, D.C. could do one of three things: The Treasury could specify in its banking regulations that banks are allowed to work with these companies; the DOJ could issue a statement saying it won’t target banks for working with them; or Congress could pass a law saying it’s permissible for banks to work with them. Representative Ed Perlmutter (D., Colo.) has a bill with bipartisan support that’s intended to accomplish the third option. But its prospects in the House look bleak. That leaves business owners in limbo.

The new laws haven’t just changed life for those selling legally. Dealers who sell illicitly also have to adjust to the new landscape. I spoke with a dealer who’s been selling illicitly for years — I’ll call him “Isaac.” Isaac lives in an upscale neighborhood in a suburb of Denver with his wife and young children. Unbeknownst to his white-collar neighbors (and his kids), he cultivates a small forest of cannabis in his basement. This in itself isn’t illegal; Isaac has a permit. And he says his wife is fine with it; growing and selling pot is his full-time job. It’s not just work, though; it’s a passion. He was a troubled kid in high school, with violent tendencies and a burgeoning drinking problem. By age 17, he’d been arrested multiple times.

Then he started smoking pot. Before, he says, he wouldn’t feel any remorse if he broke someone’s nose. But marijuana changed that; he stopped getting in fights and getting arrested — weed evened him out. He went on to college, where he studied, among other things, plant physiology, and he did graduate work in biochemistry, which comes in handy in his current profession. He says weed has been an overwhelmingly positive force in his life and in the lives of many others he has met.

Isaac doesn’t expect his profit margins to change much in January. That’s because he sells exclusively to people he knows. Much of his product goes to neighboring states (including Wyoming, Utah, and New Mexico), where prohibition keeps prices — and profit margins — much higher than they are in Colorado.

Isaac argues that medical-marijuana legalization changed the way Colorado’s black market works more than it changed its size. That’s because medical licenses let patients cultivate cannabis at home. There are essentially three steps to selling marijuana: cultivation, processing, and distribution. Medical-marijuana legalization means two of those steps — cultivation and processing — are now legal for many Colorado residents. But don’t think there’s a cannabis kingpin on every street corner. Many of these at-home cultivators — Isaac included — shy away from growing large numbers of plants, since cultivating 100 or more carries a mandatory minimum sentence of five years in prison.

It costs Isaac about $600 to produce a pound of weed (not counting the cost of rent), and he can sell it for $2,400 to $2,600 in Colorado and $3,200 in neighboring states. For years, he sold it for $4,800 per pound, and he can still get that in some parts of the Deep South. Isaac says black-market prices started dropping in 2010, after the state legalized medical marijuana. Drug cartels have largely abandoned the marijuana business here, he says, as prices have fallen.

#page#Isaac estimates that about a third of all the cannabis grown in Colorado gets exported from the state. According to an August report compiled by a network of law-enforcement agencies, in 2012 highway police nationwide seized, in total, about three and a half tons of marijuana being transported from Colorado to other states. As long as there’s prohibition in other parts of the country, and as long as there are Coloradans who prefer not to pay the mark-up that legal stores will have to charge because of regulations and taxes, there will be illegal sales of marijuana in Colorado — perhaps comparable to the black market for cigarettes in New York City — and illegal sales and shipments to people living outside the state. Marijuana advocates sometimes argue that legalization in a state will eliminate its black market. That seems unlikely. But, Isaac argues, the state has a milder black market than it would have if marijuana were completely illegal.

“All the cartels want to do is make money,” Isaac says. “All I want to do is make good product, and make sure my friends have good product.” Selling a basement’s worth of weed for a couple grand per pound is enough to make a decent living, he says, but not enough to become fabulously wealthy.

I heard the same thing — that the black market has evolved because of lower prices — from Frankie Grundler, the executive director of A New Path, a rehab center in Carbondale, Colo. “What’s happened is that the price has gone down quick,” Grundler says. “So there isn’t this criminal component to it of making outrageous amounts of money, huge profit margins.”

I met with Grundler and Stefan Bate, director of client services, in their sunny offices a few hours north of Denver, and they told me that they think recreational legalization will be better, in the long term, for public health.

Bates says he thinks marijuana could have less of a “gateway” effect when it’s sold in regulated stores instead of by dealers who could also peddle heroin, cocaine, and other drugs with far more detrimental effects.

“A lot of my clients are young guys — and they’re getting younger and younger every year — but almost without fail, they tell me it was easier to get marijuana than to get booze, because alcohol is so regulated,” Bate says. And he argues that if the criminal penalties for use are reduced, it will be easier for recovering addicts to get jobs, become self-sufficient, and move on with their lives.

He thinks full legalization makes more sense than legalization just for medical use. “To me, the medical-marijuana thing is absolutely ridiculous,” he says. “All of a sudden you have a town full of 18-year-old kids walking around with glaucoma.”

Others in the treatment industry take a less optimistic view. Scott Munson of Sundown M Ranch in Washington (which legalized recreational marijuana use a few hours after Colorado did) thinks increased dependency will be the inevitable result of legalization. He argues that as supply goes up, prices get lower, and legal consequences become less severe, the likelihood of abuse — especially among younger people — will rise. “And the consequences of that, I think, are going to be significant,” he says.

People who sell marijuana legally have to deal with a lot of the same annoying, unsexy problems that other businesses face, including cronyism and incompetent bureaucratic oversight. For instance, the Denver Post reports that a state audit of Colorado’s Medical Marijuana Enforcement Division found questionable spending on furniture, vehicles, and BlackBerrys, as well as a host of other problems. Auditors also found that twelve doctors issued more than half of the medical-marijuana recommendations in the state, suggesting that maybe not everyone getting medical marijuana actually has a medical problem. And now unions are eagerly eyeing the industry.

Regulatory failures have hurt dispensaries that follow state law, according to Kayvan Khalatbari, co-founder of Denver Relief, Colorado’s second-longest-running medical-marijuana center. “I guarantee there’s people that got away with things,” he says, “and that made it tougher for legitimates, because they were selling out the back door, they were selling to people that didn’t have cards, they were selling to underage people, because they could get away with it.”

Over the next few months, Colorado’s marijuana purveyors — licit and illicit — will keep a close eye on Denver as regulators try to craft sensible policy for an industry that, at least on a federal level, is still lawless. In some ways, Colorado’s law is a radical change. In a few months, anyone over 21 will be able to walk into a licensed retail marijuana store in the Centennial State and pick up some weed. In another sense, though, the new policy is just a codification of the state’s status quo. Even before legalization, Isaac had a maxim on the subject: “If you can’t get pot in Colorado, something’s wrong with you.”

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