'SEED-TO-SALE' SURVEILLANCE

Medical Marijuana Dispensaries Deal With Bushels of New State Regulations

The medical marijuana game is about to get some new rules that will
make it a lot harder to play in the state of Colorado.

On July 1, 77 pages of regulations from the state's Medical Marijuana
Enforcement Division (MMED) will go into effect, stipulating in
excruciating detail everything from the type of locks to be installed
on dispensaries' doors to the kind of cable used for their video
monitoring equipment. The regulations come on top of -- and as a result
of -- a series of bills that have been passed in the state legislature
over the past 18 months designed to both crack down on the industry
and take advantage of its tax revenue potential.

It's partly an effort to keep tabs on every ounce of medical marijuana
used by Colorado patients, ensuring that none of it leaves the state
or streams in over our borders. Every dispensary is now required to
produce all of its marijuana in Colorado (30 percent can be obtained
from other Colorado dispensaries over the course of a year, but it
still must be grown in Colorado).

It's not just a way to ensure that the state and local governments get
to collect the optimum amount of fees and sales tax from the industry.
The lockdown may also have something to do with the saber-rattling
that federal officials have been doing lately, and it may protect
Colorado medical marijuana operations from being targeted by the feds
in the same way they have been in other states.

'SEED TO SALE'

Boulder attorney Jeff Gard, who specializes in medical marijuana law,
says state officials' desire to create a "vertically integrated"
system that tracks pot medicine "from seed to sale" stems in part from
a landmark 2005 California case, Gonzalez vs. Raich. In that case,
which went all the way to the Supreme Court, the feds were successful
in prosecuting a medical marijuana patient even though California law
permitted medical marijuana. (Marijuana is still a schedule I
controlled substance under federal law.) One of the main arguments
used by the court to defend the feds' authority was that the homegrown
pot was entwined in the interstate marijuana market, which in turn
opened the door for the government to invoke the Commerce Clause as
justification for interjecting itself into what would otherwise be a
state's purview.

Hence, Gard says, if Colorado can demonstrate a "closed loop," in
which none of its marijuana crosses state borders, it strengthens the
case against federal intervention.

But some attorneys and dispensary owners are calling the legislation
and the new MMED regulations too onerous, if not overreaching.

"I'm not aware of any other industry in the world that is vertically
integrated," says prominent Colorado medical marijuana attorney Rob
Corry. "King Soopers doesn't own oceans of apple orchards in which it
grows its apples."

Corry challenges the constitutionality of HB 1284, the 2010 bill that
spawned the 77 pages of regulations. Corry sent a letter to Colorado
Attorney General John Suthers on May 27 notifying him that he and his
clients plan to launch a legal challenge to HB 1284. In the letter, he
outlines a host of claims, including the fact that Amendment 20, the
constitutional amendment passed by Colorado voters in 2000, calls for
definitions, legislation and criminal penalties to be enacted "not
later than" April 30, 2001, not nine years later.

Corry also challenges language allowing local governments to prohibit
the cultivation of marijuana, the limit on how much marijuana a
dispensary can bring in from outside sources, background check and
state residency requirements for licensees, and minimum distances
between dispensaries and certain other facilities, like day care
centers. He says the bill's language precluding two or more caregivers
from banding together violates citizens' constitutional rights to
association. In addition, Corry questions HB 1284's prohibition
against using "advertising material that is misleading, deceptive, or
false, or that is designed to appeal to minors," calling it a
violation of the First Amendment.

"Many things that appeal to minors can also appeal to adults," Corry
writes. "I love watching Sponge Bob with my daughters."

Deputy Attorney General Geoffrey Blue replied to Corry's letter the
same day, saying "We disagree with your analysis in its entirety, and
therefore do not believe there is any room for compromise on the
issues you raise."

Corry acknowledges one silver lining of HB 1284 and other medical
marijuana legislation: They make it harder for the feds to crack down
on pot medicine in Colorado, since its roots run deep. Everyone from
the governor who signed the bill to the legislators who passed it to
those who accept money from dispensaries for advertising could
conceivably be seen as "co-conspirators" in the state's medical
marijuana industry.

LEGITIMIZING POT

Gard, unlike Corry, does not believe HB 1284 represents a violation of
state constitutional rights. He asserts that the legislation simply
lays out the details of how Amendment 20 is to be implemented. One is
at the macro level, the other at the micro level, Gard says, and
neither takes precedence over the other.

"We have free speech, but can you yell fire in a theater?" he asks.
"No. Can you vote? Yes, but on the first Tuesday in November, with an
ID."

Gard adds that the constitutional amendment did not grant the right to
sell medical marijuana.

"If we both have a valium prescription, and you run out, I can't sell
you mine," he says. "That's a felony."

Besides, Gard says, HB 1284 gives legitimacy to an industry that has
long suffered from a credibility problem. Much like the outcry over
approving gambling in certain Colorado towns in 1990 soon faded with
the creation of strict regulations, the regulatory structure being
implemented for medical marijuana will have the effect of making it
more widely accepted than it is currently, he says.

Despite his concerns about HB 1284, Corry acknowledged in an interview
with Boulder Weekly that he advises clients who want to make a profit
with their medical marijuana operation to follow the legislation -- and
the 77 pages of rules -- to be legitimate in the state's eyes.

That path is an intricate, costly one to follow, but for those who
want to keep their noses clean, it's currently the only way under
state law. At a three-hour legal seminar held in Denver by the
Cannabis Therapy Institute on April 19, Corry went through the new
rules page by page, giving medical marijuana professionals some idea
of what will be expected of them.

The new rules will apply on July 1 for dispensaries and other medical
marijuana operations that met a series of 2010 deadlines for filing
paperwork with their local governments and the state to continue to
operate. While they will have to comply with the new rules on July 1,
legislation passed this spring precludes eligibility for all other MMJ
businesses until July 1, 2012, which Corry says "is going to lock down
the industry." Gard estimates that 85 percent of Boulder County's
dispensaries met those deadlines and will have to begin complying this
summer -- even if the state does not have its monitoring systems up and
running for months.

"The state may not come around until October, but they'll be looking
at what you had going back to July," Gard says.

HB 1284 differentiates between a single patient -- or her caregiver --
growing marijuana for personal use and the larger-scale cultivation
and sales operations that serve many patients. In the first category,
a caregiver can have no more than five patients, and no more than six
plants and two ounces of medicine per patient. Opposition to the
fivepatient limit is something Corry and Gard can actually agree on,
because they say it arbitrarily limits patients' access and choice in
an industry where one caregiver's strain might be highly effective and
in high demand.

In the large-scale category, there are three types of medical
marijuana operations allowed under HB 1284: the Medical Marijuana
Center (MMC), which is the dispensary; Medical Marijuana Infused
Products (MIP), or "edibles," providers; and Optional Premises
Cultivation Operations (OPC), which are grow operations.

TRACKING THC

To hear Corry and Gard tell it, no matter which path a business takes,
its carefully tracked inventory is tied back to the number of patients
it has. It can have hundreds of patients, and the more one has, the
more expensive the state fees -- the categories are less than 300
patients, 300 to 500 patients, and more than 500 patients. (Gard says
the cheapest license is $7,500, plus $1,250 for a grow operation, not
including any fees required by local government, like the $5,000
charged by the city of Boulder.) But regardless of how many patients
they have, operations are still limited to six plants and two ounces
per patient.

"If you have an excess amount, you are required to destroy it," Corry
says.

And from the moment the seed is planted to the second it is sold to
the customer at the cash register, its location and other identifying
information is documented. The plant -- and later, the package that the
dried product is placed in -- will sport a radio-frequency
identification (RFID) tag not unlike the ones affixed to merchandise
at Walmart to track inventory and set off alarms at doorways.

According to Dan Hartman, MMED director, his inspectors will be able
to enter a grow operation with a handheld reader and instantly compare
the amount and ID numbers of the entire crop with the state's database
of what should be there. Alerts will notify regulators if there is any
discrepancy between what is on site and what is in MMED records,
whether it's when the packaged product is scanned as it's loaded onto
the delivery truck or checked in electronically upon arriving at the
store.

Video cameras will be rolling (only during work hours if approved
alarm systems have motion detectors activated during off-hours) not
only at the store, but at key points in the grow operation, including
when it is weighed, before and after drying and packaging. Operations
will have to keep 20 days of videotape stored and accessible to MMED
at all times, with an additional 20 days of archived video, available
on DVD or a hard drive, for instance.

The marijuana must be inserted in sealed containers with tamper-proof
bands, no more than one pound per container, transported to the MMC
(and documented on the driver's manifest) within 48 hours, and weighed
again at the center within eight hours.

Those in the medical marijuana business will have to inform the state
within 10 days if they have any criminal arrests or convictions, and
they must report any new patients they acquire within 72 hours. The 77
pages of rules contain a long list of possible violations and the
sanctions that accompany them.

"It's going to be hard at the beginning to keep all of this in your
brain and do what they want," Corry told attendees at the April 19
seminar. "Use your common sense. ... They don't want used paraphernalia
anywhere. They don't want any evidence of use on the premises."

MMED inspectors, who Corry refers to almost affectionately as "reefer
rangers," will be able to inspect the marijuana facilities at any
time, as can other law enforcement officers. Corry says licensees
complying with the state process effectively give up their Fifth
Amendment right to avoid self-incrimination and Fourth Amendment
rights against unreasonable searches and seizures, and they are guilty
until proven innocent.

"It's a recipe for some degree of unfairness," he says, adding that he
unsuccessfully pushed for better oversight of the inspectors
themselves. "This entire scheme gives massive amounts of power to
these regulators. This is like prohibition. Who's watching the
watchers? ... They're the good guys, they're the government. But human
beings are human beings."

Corry expects regulators to set up stings, similar to the way that
police send underage drinkers in to test bars and liquor stores.

"Assume that everyone who comes in is a cop," he said on April 19.
"That should be the chief operating principle for your employees."

And the 77 pages of rules will likely grow. There are still
significant sections, like "Instructions for Local Licensing
Authorities and Law Enforcement Officers," that were left blank, or
"reserved," to be completed in the future. The state's need to fill in
those holes and get up to speed on the entire monitoring and
regulatory structure was one of the main reasons why full
implementation was put off a year in HB 1043, the medical marijuana
"clean-up bill" passed this spring.

Hartman says he and his regulators are thankful for the extra
time.

"It helps us quite a bit," he says. "We need to do our due diligence
and not hurry it along."

But medical marijuana operations classified as "existing" don't have
that extra time -- they have less than a month before the new rules
kick in. Hartman says that group includes 818 centers, about 320
infused-product out fits and around 1,250 grow operations statewide.

And there still seems to be some educating to do. Gard says he was
recently discussing the new regulations with an officer in the Gilpin
County Sheriff 's Office who wasn't aware that he will have detailed
information about medical marijuana operations at his fingertips when
he goes on a call.

"You should have seen the look on this police officer's face," Gard
recalls. "He asked, 'Are they really doing that?'"