LEGAL POT SHOPS IN MICHIGAN GET MIXED RECEPTION

Two months ago, Ryan Richmond and three other investors opened an
unusual type of business in a modest cinderblock storefront in
Ferndale, hoping to capitalize on the state's newest medical industry.

The space, which once belonged to a film industry payroll company,
now receives a steady stream of customers looking to soothe their
medical ailments with the state-legalized drug of marijuana.

The business's client base has grown to more than 1,000 regulars.
State-certified patients can pick from among 15 to 20 varieties grown
by local caregivers approved by the state to cultivate the
pungent-smelling bud.

"Obviously, there is an opportunity," said Richmond, co-owner of
Clinical Relief LLC, a medical marijuana consulting business.

"Many patients say they can't get a continuous supply of marijuana."

Nearly 20 months after state voters legalized marijuana for medicinal
use, a small yet fast-growing service industry has taken root in
Michigan to supply patients with the drug.

But, as businesses rush to gain a foothold in this budding market,
state regulators and law enforcement officials are still trying to
make sense of the new law.

Along Eight Mile near Southfield, up the Interstate 75 corridor in
Oakland County and into the western reaches of Wayne County,
billboards have cropped up advertising schools that say they can
teach people how to grow medical marijuana and health clinics that
specialize in getting residents certified for using it. Marijuana
remains illegal for recreational use.

Dozens of garden stores have sprung up selling hydroponic gardening
kits and high-intensity lamps -- equipment commonly associated with
growing pot.

A marketplace for buying and selling the drug also has emerged in
dispensaries, cafes and support groups, known as compassion clubs,
where card-carrying medical marijuana patients can purchase an ounce
for between $300 and $400.

But some cities, like Livonia and Troy, already have restricted or
banned business related to the drug. Others, like Ferndale, have
enacted moratoriums on marijuana-related commerce until they can
create rules to better regulate its trade.

"A lot of this is going to get ironed out in court," said Michael
Komorn, a Southfield-based attorney who specializes in medical
marijuana cases. "There is no bottom line on this because the law is murky."

New Business Opportunities

Industry backers, however, say the expanding marketplace could bring
new business opportunities for Michigan's ailing economy.

About 21,000 patients so far have received state-certified medical
marijuana cards. Another 8,900 have registered with the state as
caregivers, residents who grow and harvest marijuana for a limited
group of patients.

The number of applicants grows each month. In June, the state
received a record 5,909 applications.

"People are coming out of the woodwork," said Komorn, a board member
of the Michigan Medical Marijuana Association, an industry advocacy
group for patients and growers. "They are excited, and they see this
as an opportunity to get their foot in the door."

Already, many garden stores are doing brisk business selling
equipment for growing medical marijuana, and displaced workers are
finding new prospects in the state's newest cash crop.

The state also is attracting out-of-state investors and national
chains, such as Oaksterdam University, an Oakland, Calif.-based trade
school for cannabis growers. The university opened a Michigan campus
last year in Flint.

According to state law, a caregiver can have up to 60 plants at a
time to supply five patients. Each patient is allotted 12 plants, and
the caregiver can also be a patient.

At best, this arrangement can earn a grower up to $40,000 a year, but
the real money lies in selling excess product to dispensaries and
patient groups, a transaction that falls into the gray areas of the
law, experts say.

While state law makes it legal for caregivers grow pot, it doesn't
address what they should do if they harvest more than they need for patients.

Some industry ads for grower training courses tout salaries of up to
$100,000 a year.

"Is there big business available? Yes," said Adam Brook, a former
grow shop owner and organizer of the annual Ann Arbor Hash Bash. "But
not by staying 100 percent legal."

Cities Respond

The law's ambiguity has prompted some cities to restrict medical
marijuana commerce. Troy, for instance, has banned dispensaries --
businesses that buy pot from local caregivers and sell it to patients
with medical marijuana cards. Troy officials feared the facilities
would invite break-ins and hurt the community, said City Attorney
Lori Bluhm said. The city also questioned their legality under state
and federal laws, which don't address the issue of dispensaries, Bluhm said.

"The fact that there is no explicit provision to have dispensaries in
Michigan is an indication they're not allowed," she said.

Some experts, however, say the big bucks are in selling grow
equipment and other supplies to marijuana growers.

One benefit is there is no question the equipment sales are legal,
Brook said. And they offer a decent financial return.

"It's not a cheap hobby to get involved in," Brook said, adding that
grow lamps can cost about $400 each. "That's a nice sale for a guy
who was told this is a growing opportunity."

Miles Vankeersbilck, a store clerk at Hydro Heaven on Eight Mile in
Detroit, said sales continue to grow as the state approves more
caregiver cards.

The store sells everything from high-intensity lamps to grow tents
lined with metallic material. Its selection of nutrient-rich
fertilizers spans several aisles.

It opened about a year ago, one of the first in Detroit, but now it
is among many that have started to "pop up everywhere," Vankeersbilck said.

For some, growing is a secondary job; for others, it's a main source
of income, he said.

"We meet people who are moving in from out of state," Vankeersbilck
added. "They're out of work and come here."

But after the initial rush, the industry's growth may taper off
significantly, economists say.

"The notion that there is some huge pot of money to be made is a bit
of an exaggeration," said Jeffrey Miron, an economist at Harvard
University who studies the marijuana trade.

The market is likely to hit a saturation point quickly and some
businesses will be forced to close as competition heats up, he said.

State and city governments could make some additional money if they
tax the drug's sales, but it probably won't add much to their
coffers, Miron added. Medicinal pot sales tend to remain smaller than
other business activities.

Compassion First

Meanwhile, some medical marijuana industry advocates denounce this
profit-driven mindset. They view the drug's legalization as an act of
compassion first and a business second.

"We're trying to provide a safe place so people don't have to do this
on the street corner or back alley," said Bill Teichman, 51, owner of
the Waterford Area Compassion Club and Everybody's Cafe.

The club sells memberships for $20 a year, and state-certified
patients and caregivers can participate. The cafe, which opened nine
years ago, has seen business pick up slightly since it added the
compassion club, and Teichman plans to expand by opening a dispensary
and supply shop. The club has about 450 members.

Similarly, the owners of Clinical Relief in Ferndale have plans to
expand, but say the business is rooted as a health service, supplying
medicine to patients who would otherwise have trouble getting it
because of the ambiguities in state law.

"The law is so goofy. It barely makes sense," Richmond, of Clinical
Relief, said. "Logistically, how do you supply all this?"

"You don't make penicillin in your brother's basement if you need it," he said.

The investor group already owns dispensaries in Colorado and Nevada
and has plans to open several locations in Michigan during the next
couple of months, increasing its staff to 50.

Still, Richmond acknowledges that the dispensary is a for-profit
business and its margins have to stay healthy, too.

"I can guarantee our margins are nowhere near the pharmaceutical
industry," he added.

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14 STATES LEGALIZE MEDICAL MARIJUANA

But Gray Areas in Law Cloud Prospects of Big Profits in Mich.

After decades of marginalization, medical marijuana is gaining
greater acceptance across the country and is becoming big business in
states that have embraced it as a gentler, more natural medication
for patients suffering from illnesses such as cancer, glaucoma and HIV.

Fourteen states, including Michigan, have legalized the drug for
medicinal use, and another dozen are considering bills to start
medical marijuana programs. The nation's capital could join their
ranks since the District of Columbia's council in May unanimously
approved legalizing and regulating the pain-soothing, appetite-inducing drug.

The Obama administration and the U.S. Department of Justice said last
year they would no longer pursue cases against medical marijuana
patients and suppliers who are abiding by state laws. Use of
marijuana is still illegal under federal law, something the Bush
administration vigorously enforced.

In some states, medical marijuana has become a sizable part of the
economy -- even when the industry's expansion has largely fallen in
the gray area of the law. In California, marijuana is considered
among the state's leading cash crops. In Colorado, medical marijuana
dispensaries outnumber Starbucks locations 3 to 1.

In other states, such as New Mexico and Oregon, heavier regulations
have limited growth.

"It hasn't become a Wal-Mart type of business," said Jeffrey Miron, a
Harvard University economist who studies the marijuana trade. "But
it's gone beyond a mom-and-pop sort of activity."

California was the first state to legalize pot for medicinal use in
1996, spawning an industry that grew rapidly and remains among the
nation's most loosely regulated.

The state is home to marijuana-growing superstores, where patients
can get cannabis cards that certify their eligibility to use
medicinal marijuana, as well as equipment for growing the plant. A
publicly traded company, Medical Marijuana Inc. based in Marina del
Rey, provides consulting services.

And a dispensary in Oakland, Harborside Health Center, hopes to
establish the nation's first medical marijuana franchise. A
dispensary is a place where state-approved growers, known as
caregivers, can sell off excess pot and patients can buy it by
showing their certification card.

The industry's swift growth, however, has prompted many states,
including Colorado, to tighten the rules. Some also have begun taxing
medical marijuana sales. That has helped limit or reduce the number
of medical marijuana businesses.

In Los Angeles, a new law caps the number of dispensaries at 70.

Colorado, which has about 1,100 dispensaries, requires facility
owners to pay licensing fees and follow local zoning ordinances, said
Mike Meno, a spokesman for the Marijuana Policy Project, a
Washington, D.C.-based advocacy group.

Some industry experts estimate the stricter rules could prompt about
half of the state's dispensaries to close, Meno said.

"The trend is that people are going to follow Colorado," Meno said.
"They're going to realize you can't have this industry operate in the
gray area. ... People need to know what's legal and what's not."

In Michigan, state medical marijuana laws are still vague in many
areas, such as on how patients are to obtain the drug and what
growers are supposed to do with excess marijuana.

In this gray area, dispensaries have opened to meet the needs of patients.

Without stricter regulations, their numbers could proliferate,
experts say. But that's unlikely to happen. Some local governments
already are looking for ways to stiffen the rules on medical
marijuana commerce.

"I wouldn't be surprised," Meno said, "if Michigan joins the states
that are retroactively regulating their industries."