BOULDER MEDICAL MARIJUANA SHOPS STRUGGLE WITH LAWS

New City Requirements, Fees Agitating Some Businesses Owners

The cost and effort of complying with new state and local laws has
had a winnowing effect on Boulder's medical marijuana industry, the
full results of which likely won't be known for a year or more.

The legislators who pushed changes to state laws earlier this year
predicted that many dispensaries would not survive, and so far just a
fraction of the existing marijuana businesses have applied for new
licenses they need to stay in business.

Many of those who remain say they are struggling with the cost of
extensive new regulations and unsure of how to comply with
conflicting requirements, while others say it's the price they must
pay for legitimacy.

Industry observers say many mom-and-pop operators have sold out to
new investors with backgrounds in business and access to capital.
Those who haven't filed for new licenses may melt back into the black
market from which they came.

At the same time, commercial grow operations are flourishing in
Boulder's industrial areas as dispensary owners lease warehouse space
to comply with the requirement to grow 70 percent of their own
supply. They account for more than half of the requests for new
medical marijuana business licenses in Boulder.

All the while, marijuana remains illegal at the federal level,
creating a risky Catch-22 for business owners: Every step they take
out of the shadows -- every form they file, every permit they pull --
might serve as evidence of a crime. Not taking those steps is also a crime.

Adding to the confusion, state law requires every marijuana business
to get local approval, but in Boulder, some of the local requirements
conflict with state law.

Industry Changes in Boulder Unclear

Just a few months ago, 208 medical marijuana-related businesses held
active business licenses, meaning they were remitting sales tax to
the city. Of those, 112 applied for new licenses from the city of
Boulder by Nov. 1 under a new regulatory regime, and only 46 of those
are retail dispensaries, known under the new state law as medical
marijuana centers.

Another 53 are commercial grow operations tied to dispensaries,
either here or in neighboring communities, and 13 are for the
manufacturing of marijuana-infused products, like baked goods, soda
and tinctures.

City spokeswoman Sarah Huntley said the city doesn't have a breakdown
of what types of marijuana-related businesses operated in Boulder
before Nov. 1, so officials don't know yet exactly how the makeup of
the industry has changed.

The new state law requires that all centers grow 70 percent of their
own marijuana by Sept. 1, which sent dispensary owners scrambling for
warehouse space. Boulder is one of the few places where landlords and
local zoning are amenable to grows, so center owners from around the
region, like Laurel Alterman of Louisville's AlterMeds, have pulled
grow licenses in Boulder.

"We pitched it to Louisville, but they ignored us," Alterman said.
The city has a moratorium on new marijuana businesses in place.
"Boulder was the only place we could find a location."

Like many dispensary owners, Alterman hired her favorite grower as an
employee to run the grow operation. She pulled $75,000 out of her
business to get the warehouse up and running. Even with a positive
cash flow and no debt, she was unable to secure a bank loan.

Regulatory Fees Add Up

Ryan Hartman, owner of Boulder Wellness Center on East Arapahoe
Avenue, said he has not pulled a paycheck in two months as he
struggles to pay more than $15,000 in state and local fees and bring
his grow operation up to code. There is no guarantee Hartman's fees
will secure him a license, and even if it does, he'll have to apply
again in July and pay yet more fees, the amount of which haven't been
determined.

"I own a business that grossed a million dollars last year, and I
can't even afford a car," he said, adding that he feels like he's
back in high school with the bully who hit him up every week for
another $20 to not beat him up.

"Eventually we talked to the police, and he got in trouble for
extortion," Hartman said. "Now, I can't call the cops because these
guys are the cops."

Nick Cokas, owner of Colorado Care at 28th Street and Iris Avenue in
Boulder, might have to remove his sister as a business partner, even
though she has helped the former grower with the business side of his
operation for almost two years. She moved to Colorado in January and
doesn't meet the residency requirements of the state law.

But those who have applied for new licenses say they are determined
to stick it out and do what they need to stay in business.

"I've been busting my ass on this for two years," Cokas said. "I'm
not going to let them drive me out."

What will happen to those who don't meet deadlines is less clear.
Boulder attorney Eric Moutz, who specializes in medical marijuana
issues, said many are continuing to operate, figuring that any
earnings they make between now and when they get shut down is money
in the bank. (For the record, he advises his clients not to do this.)

Shops Without Licenses Take Risks

Boulder attorney Jeff Gard, who also works with many marijuana
business owners, said anyone who operates without a license is
playing with fire. The state law strips them of their immunity under
the constitutional amendment that legalized medical marijuana in
Colorado, rendering them nothing but drug dealers, if they fail to
comply. Possessing more than 8 ounces of marijuana is a felony, and
local jurisdictions know exactly where these businesses are.

"There better not be one plant around that business when some
official comes knocking," Gard said. "And that person likely will not
be from municipal code enforcement. They'll be from the drug task force."

One of the long-standing dispensaries in Boulder that didn't appear
on the list of new applicants is Jay Epstein's Boulder Meds on
University Hill. Reached by phone, Epstein said he has applied and it
"must be a typo" that he's not on the list. City officials could not
be reached late Friday afternoon to verify that.

Epstein said those who complain about the new regulations don't
understand what other businesses go through. When his family, which
owns Mamacita's Mexican Restaurant on the Hill, bought their first
restaurant, they had to spend $175,000 to come up to code. They
continue to deal with strict rules and regular inspections from the
health department, the liquor licensing board and city code enforcement.

"They're just trying to keep us from turning into a junk show," he
said. "Other businesses have to comply with regulations. The extra
legitimacy brings something to the table."

Code Enforcement the Priority

Huntley said the city is in the process of cross-referencing the two
lists of business licenses and will be sending letters to those who
did not apply for new permits. They'll be told they either have to
close or remove all marijuana from the premises. Then police will
follow up with those businesses.

Huntley said she could not guarantee that no one would be criminally
prosecuted, but the city's priority is code enforcement, not drug
enforcement, and most offenders will be issued tickets, not hauled off to jail.

Similarly, Julie Postlethwait, a spokeswoman for the medical
marijuana enforcement division of the Department of Revenue, called
drug enforcement and code compliance "apples and oranges."

Once regulations are finalized and investigators are hired, the state
will shut down businesses that don't have licenses. However, those
who simply made mistakes on their application or have other problems
will have a chance to appeal or rectify the error, she said.

"This is an industry that we're invested in as well," she said. "We
want this to be a strong and robust industry and a safe industry that
supplies a safe product to patients."

Gard, the Boulder attorney, doubts the state cares much about
individual business owners or patients, but he predicts government
will come to rely on the revenue generated by the industry. That will
protect the business owners who survive the next year or two, he said.

But Moutz sees a less promising future if current political trends
continue. Medical marijuana, which was legalized years ago, exploded
into the open when President Barack Obama's Justice Department said
it would not prosecute patients and caregivers in states where
medical use is legal. That change, though, is a matter of policy, not
law, and could change again.

"I would tell anyone I represent, if a Republican president gets
elected, you are done," Moutz said. "You are done on election night."

[sidebar]

MEDICAL MARIJUANA RULES

State law allows for three types of marijuana businesses: medical
marijuana centers, which sell marijuana, manufacturing of infused
products and cultivation operations.

Applicants for a license must pay between $7,500 and $18,000 in fees,
depending on the size of the marijuana center.

Convicted felons cannot own or work in medical marijuana businesses.

Only Colorado residents can have an interest in a medical marijuana business.

Operators do not have to be patients and they cannot be primary caregivers.

Operators must grow 70 percent of their own supply.

The state is working on new regulations that will include extensive
tracking of marijuana, from seed to patient.

To be licensed by the state businesses also must comply with all local rules.

Boulder has its own rules and fees, some of which conflict with the
state rules.

Local governments can ban medical marijuana businesses within their borders.

For complete text of the state law visit
colorado.gov/cs/Satellite/Rev-Enforcement/RE/1251575120132.

By the Numbers: Med-Pot in Boulder

208 marijuana-related businesses with active sales tax licenses in
Boulder, prior to Nov. 1

112 Marijuana-related businesses that applied for a new license by
Nov. 1 deadline

46 Applications for medical marijuana centers, formerly known as dispensaries

53 Applications for commercial growing operations

13 Applications for manufacturing of infused-products