BOULDER POT DISPENSARIES STRUGGLE WITH NEW STATE RULES ON MEDICAL
MARIJUANA

Boulder-area providers of medical marijuana are scrambling to comply
with new state regulations that require them to grow most of their own
pot, keep detailed records of all transactions and apply for state
licenses through a process that includes criminal background checks.

The new rules, signed into law by Gov. Bill Ritter earlier this month,
are predicted to put at least half of the state's 1,100 medical
marijuana dispensaries out of business.

Local dispensary owners agree their numbers soon will be fewer, but
each business owner is doing everything possible to be one of the survivors.

"When I look six months down the road, we're either going to be very
successful because we made it through this, or we're going to be out
of business," said Ryan Hartman, owner of Boulder Wellness Center on
Arapahoe Avenue.

The biggest hurdle for Hartman is the requirement that dispensaries
grow 70 percent of their own marijuana by Sept. 1. Hartman doesn't
have the resources to hire employees right now, and he and his
partners -- his wife and another couple -- are working "triple-time"
to ramp up what had been a very small growing operation.

The new rules also require that dispensaries -- called "medical
marijuana centers" -- have a local license by July 1 and apply for a
state license through an as-yet-undetermined process by Aug. 1. The
state license requires criminal background checks for all owners,
officers and employees and calls for detailed security and
record-keeping measures to account for all the marijuana that moves
through a center.

"I think ultimately the goal of the legislation is to centralize the
industry so it's easier to keep track of and control and tax," said
Eric Moutz, a Boulder attorney who specializes in advising clients who
work with medical marijuana.

While some of the law's requirements are clear, many of the details
still need to be worked out through a state rule-making process that
could take most of the year.

"Everything is in a holding pattern until the rules get set," Moutz
said. "And those could be crippling or they could be very
reasonable."

At the same time, marijuana advocates are pursuing several lawsuits
aimed at blocking the new laws.

Matt Cook, senior director of enforcement for the Colorado Department
of Revenue, already has spent hours in meetings with people with a
stake in the outcome -- dispensary owners, patient advocates, makers
of edibles -- and expects the rule-making process to take the better
part of the year, though a basic application for a state license
should be available sometime in July.

The rest of the law won't go into effect until July 1,
2011.

Cook said the state has several licensing standards for controversial
industries, such as liquor stores and casinos, from which to draw in
developing requirements for medical marijuana centers, and he's
committed to an open process that includes input from a variety of
sectors.

The law also allows municipalities and their voters to ban
dispensaries, as well as regulate their location and the total number
of dispensaries.

Superior recently became the first town in Boulder County to
completely ban dispensaries. Lafayette, Louisville and Longmont all
extended existing moratoriums on new dispensaries into next year. That
gives the towns more time to see how state regulation develops and
consider what local regulations to implement.

Boulder spokeswoman Sarah Huntley said the city attorney's office is
studying the new law and how it relates to local regulations adopted
earlier this year. Those require dispensaries to pay expensive
licensing fees and limit how many dispensaries can locate in a given
area.

As of the end of April, 125 people had active sales tax licenses for
marijuana-related businesses in Boulder, Huntley said, but city
officials believe there are only 40 to 50 dispensaries open and operating.

Ernie Travis, owner of Boulder Vital Herbs on north Broadway, said the
new requirements represent a significant cost. He'll have to come up
with fees for both the city and the state, but the real hurdle is
growing more of his own supply. Setting up a grow operation large
enough to meet his business' needs will cost $50,000, he said.

"I always wanted to be the store where you could come in and shake the
hand of the farmer who grew your medicine, but it's just not humanly
possible," he said.

Over the last year, he supplied about 10 percent of his store's
marijuana and bought the rest from area growers.

To meet the new requirements, he's selling shares in his business to
some of his growers, turning them into part-owners and counting their
efforts toward his 70 percent.

Moutz said such arrangements between growers and retail operations may
not pass muster with regulators. However, the new regulations
explicitly allow dispensary owners to have employees who work on
growing pot, whereas before, anyone who dealt with marijuana had to be
either a caregiver or a patient.

"Now you won't have to have this fiction of being a caregiver" if all
you do is grow marijuana for sale, he said.

However, sticking with caregiver status would allow providers to avoid
many of the new regulations, including the detailed record-keeping
that could come back to hurt providers if the federal government
cracks down on pot.

"You have to keep detailed records of the sale of a product that still
is illegal at the federal level," Moutz said. "That's what would scare
me. You're required to keep records that would implicate you in
federal drug crimes."

Moutz said he expects to see some dispensary owners getting out of the
business and setting up as caregivers whose patients have a doctor's
recommendation that allows them to have a large number of plants.

The surplus will end up in a gray market or even a black market for
marijuana, but the business will take place out of sight of the public
and regulators.

"I don't condone that," Moutz said. "It's clearly illegal. But it's
easier than complying with the law."

[sidebar]

New medical marijuana regulations

State regulators will create a licensing process for "medical
marijuana centers." The licensing process will include fees, criminal
background checks and strict record-keeping and security
requirements.

Centers must grow 70 percent of their own supply. Any additional
marijuana can only be bought from other licensed centers.

Wholesale growing operations are not allowed.

Only Colorado residents can run medical marijuana centers.

Recently convicted felons and anyone with a drug-related felony cannot
own a dispensary.

Local governments or their voters can ban dispensaries in their
communities.

The law distinguishes between retail operations and primary
caregivers, whose role is protected by the state constitutional
amendment that legalized marijuana for medical use.

Primary caregivers cannot have more than five patients.

Doctors who recommend marijuana must complete a full assessment of a
patient's medical history and be available for follow-up care.

Doctors cannot get paid by dispensaries to provide recommendations.