BOULDER WEEDS OUT ITS MEDICAL MARIJUANA INDUSTRY

City Rejects One-Third of Business License Applications So
Far

Boulder officials have rejected more than one-third of the
applications from people seeking to run medical marijuana dispensaries
or growing operations in the city, slowing the pace of what once was
seen as a Wild West-style rush for riches.

Ten months after the initial 119 business-license applications were
turned in by Boulder's November deadline -- set when the City Council
last year approved sweeping new regulations for the budding industry
- -- 40 medical marijuana companies have licenses to operate.

So far, 41 of those 119 applications, from existing businesses that
had opened prior to adoption of the new rules, have been rejected for
reasons that include zoning problems, incomplete paperwork and -- in
about half of the cases -- the sometimes extensive criminal records of
owners, operators and investors.

City officials say the vast majority of the 38 applications that
remain in their queue have passed their initial background checks and
are well on their way to being awarded business licenses.

As for those business owners who have been denied licenses, some have
closed shop or moved to cities with less stringent rules. Some fired
or bought out employees and partners with problematic pasts.

And many others are appealing the city's decisions -- a tactic that
allows them to stay open and keep their fingers in Boulder's
multimillion-dollar marijuana industry while they plot their next steps.

Green tape

Mishawn Cook, Boulder's licensing clerk, is the city worker tasked
with combing though the thousands of pages of documents that make up
the applications for medical marijuana business licenses.

It's fallen on her shoulders, with support from the city attorney's
office, to weed out those individuals and businesses that are not fit
for Boulder.

And the criteria are dizzying.

Businesses that deal with marijuana -- a substance still illegal under
federal law -- must submit to the city detailed plans for keeping
their products secure and out of the hands of minors, as well as
business plans and "good neighbor" plans.

Applications also require detailed information about every person
associated with the proposed business, including owners, employees and
investors. Each person is required to disclose personal financial
information, details about their investment in the business, where
that money came from, and information about their criminal history.

A business can be rejected for a wide range of reasons, including
incomplete paperwork, a failure to communicate with the city, zoning
problems or a pattern of bad personal behavior. Sometimes, an
application for a greenhouse or infused product license was turned
down, while the main retail center license moved forward.

"We look at the totality of the business," Cook said.

Through the beginning of August, four licenses have been rejected due
to incomplete applications; eight were withdrawn by the applicants;
and 10 had problems with compliance, zoning or building permits.

The largest number of rejected applications, 19, were denied at least
partly due to issues identified through individual background checks.

Criminal rejections

City officials declined a Camera request under the Colorado Open
Records Act to inspect the complete set of records that were used to
determine whether an applicant passes the city's requirement that
medical marijuana business owners must have "good moral character."

Those records include background checks conducted by the Colorado
Bureau of Investigation, the Federal Bureau of Investigation and other
sources. They also include evidence of "rehabilitation" that
individuals may submit along with their personal information, as a way
of mitigating or explaining their past.

The city did, however, release some information from the application
packets that identify all of the people who have a stake in a
dispensary or growing operation. The Camera then conducted its own
background checks using that information and records from the Colorado
Bureau of Investigation.

The results found that, of the 186 people who had a stake in a
rejected medical marijuana business in Boulder, 48 of the applicants
- -- or about 26 percent -- have been arrested at some point in Colorado.

The records show that some people have relatively minor criminal
histories that include charges such as driving under the influence or
failing to appear in court on traffic offenses.

But others within the industry have faced serious felony charges -- or
spent time in jail -- for charges that include sex assault on a child,
assault, domestic violence, fighting with police, carrying concealed
weapons, drug possession, assault with a deadly weapon, child abuse
and public brawling.

"They really seem to be all over the map," Cook said of individual
backgrounds.

A crime of "moral turpitude" -- a loose legal definition that includes
crimes such as arson, battery, robbery, extortion, identity theft,
forgery, tax evasion or using a fake ID -- is cause for rejection of
an entire business' application. So is a felony drug conviction at any
time in a person's history; a felony conviction of any kind within the
last five years; a drug-related misdemeanor conviction within the last
five years; more than three misdemeanor convictions within a five-year
period; or evading or obstructing a police officer.

Cook also looks at the overall criminal histories of each person to
decide whether he or she likely would follow the rules for a medical
marijuana business.

"You can see a pattern when you're running all the information," she
said.

'I've grown up quite a bit'

Michael Stetler, owner of Pueblo-based Marisol Therapeutics, has one
of the most extensive arrest records among all of the Boulder applicants.

He withdrew his application to operate a greenhouse growing operation
at 1501 Lee Hill Road earlier this year.

He acknowledged that his criminal record is less than stellar, but he
doesn't think people's past mistakes are representative of how they
would run a business.

"I hear Boulder is pretty rough," said the 54-year-old Vietnam-era
veteran. "They denied someone for disorderly conduct 15 years ago."

Stetler was first arrested in 1976 at the age of 20 for harvesting a
cow elk without a license in Summit County.

In the subsequent decades, he was arrested on suspicion of contempt of
court, obstruction of police, introducing contraband to a jail work
crew, driving under the influence of alcohol, cruelty toward a child,
vehicular assault, trespassing, larceny and a range of traffic offenses.

Stetler said some of the charges were dropped, while others were the
result of past immaturity.

"I've grown up quite a bit," he said. "I realized I messed up when I
was a kid. That doesn't mean a person can't change."

He said the medical marijuana industry is just gaining legitimacy, and
that its lingering taboo status is causing people to unfairly
scrutinize those within the business.

Boulder's Cook, though, said other industries, including alcohol, are
just as scrutinized. The difference is that after decades of
enforcement, business owners with criminal backgrounds know that it
would be a waste of time to apply for a liquor license -- so they don't.

The businesses that draw the most scrutiny are those that involve
complex regulations or products that can only be sold to certain
groups of people, Cook said. That gives government a strong interest
in only allowing people who have shown they can follow the rules into
the industry.

Convicted and sued

Mark Young is another person with a lengthy criminal history whose
application was rejected in part because of his run-ins with the law.

Young, a prominent Boulder developer, is scheduled to be sentenced
Monday after being convicted of theft in connection with a 2006 real
estate deal on west Pearl Street.

He did not return messages seeking comment.

In addition to his most recent conviction involving an elaborate real
estate transaction, records show that Young also has been arrested on
suspicion of larceny, driving under the influence of alcohol, writing
a bad check and contempt of court.

The 50-year-old also is being sued in Boulder District Court by the
owners of Top Shelf Farms for allegedly selling his ownership interest
in the Epic Cure Boulder dispensary to them before opening up the
Spoon Full of Sugar dispensary in violation of a non-compete agreement.

The city denied both of those dispensaries' business
licenses.

Family, money and family money

The applications also require marijuana business owners to disclose
where they're getting the money for their businesses.

Many were less than forthcoming, listing simply "cash" or "savings" as
the source for tens of thousands or even hundreds of thousands of dollars.

But for those that did disclose the source of their investments,
medical marijuana often is a family affair. Business after business
reveals parents investing profits from their own businesses or their
retirement savings into their kids' businesses.

The disclosure requirement is intended to make sure money from illegal
ventures -- particularly drug dealing -- doesn't end up in the
legitimate medical marijuana business. But it also shows the ties
between medical marijuana and long-standing legal businesses.

Beth Gibbs Melshenker, a senior vice president with a prestigious
head-hunting firm, gave $125,000 -- almost half the total start-up
capital -- to her son Bradley Melshenker for The Greenest Green.

Aaron Shaw, a partner in two local Haagen Dazs restaurants in Boulder
and Broomfield, received $162,000 from his parents to start Boulder
Rx. His parents also own Haagen Dazs franchises. An aunt works as a
bookkeeper in the marijuana business.

And father and son Israel and Jacob Salazar, who already were in
business together through TSN Investments of Cherry Hills, together
launched MMJ America.

Brandon Ralph, of Evolution Medicine Services, lists his former
employer as the luxury fashion designer Tom Ford in New York before
moving to Nederland and opening a marijuana growing operation and
dispensary in late 2009.

His father, Michael Ralph, was in the construction business and was
president of Engineering Resources International in Florida for nine
years before becoming his son's manager.

Fighting for compliance

Some of the businesses rejected by the city have chosen to appeal the
decision.

While none of the appeals have made it to an administrative judge --
who has the final say over the matter -- some successfully have
convinced the city to take another look at their applications after
firing or buying out people who were flagged in the background checks.

Erik Knutson had to resign his position with Colorado Bottling
Company, the marijuana soda production company of which his brother
Kelly Knutson is vice president, because the company couldn't move
forward with him on staff.

Erik Knutson's criminal background includes arrests on suspicion of
driving under the influence, leaving the scene of an accident, public
brawling and resisting arrest.

"I resigned my position with CBL following the license application
process and start-up," Erik Knutson wrote on the license application
for Superum Inc., a company that partners with Colorado Bottling
Company and handles much of the merchandising associated with Keef
Cola.

Neither Knutson brother responded to requests for comment.

In addition to alcohol- and drug-related offenses, Cook and Assistant
City Attorney Kathy Haddock said the city of Boulder takes a very dim
view of people with a history of resisting arrest or fighting with
officers, even though those actions often result in misdemeanor charges.

It shows, they said, a disinclination to follow the
rules.

Jay Epstein, founder of Boulder Meds, hasn't been arrested since 2002,
but back in the 1990s, he was arrested several times, including once
on suspicion of marijuana possession and once on suspicion of
assaulting a police officer.

Epstein views himself as a maligned legitimate businessman. For years,
he worked for his family's Mexican restaurant, Mamacita's on
University Hill, and when the city first considered regulating the
marijuana industry, he advocated strict rules and a moratorium on new
businesses.

When the city told him he needed to shut down Boulder Meds, he asked a
Boulder County judge to block the city and allow him to remain open.
After a two-day hearing, the judge sided with the city.

Haddock had told the judge that to allow Epstein to remain in business
would mean the city's laws were just suggestions.

Epstein declined a request for interview, saying he is trying to
decide whether to keep fighting in Boulder or look for a new location.
He strongly disputes the way the city has characterized his
background, though.

His license application with the state is still viable. State
regulators only look to make sure there are no felonies in the last
five years and no drug felonies, requirements Epstein easily meets.

However, without local approval, his state license will be denied as
well.

Finding legitimacy

Diane Czarkowski, owner of Boulder Kind Care, located at 2031 16th
St., received her business license in the mail three weeks ago.

Czarkowski said she has been "frustrated" by the city's in-depth
licensing process at times, but she also "appreciates they are under
extreme pressure to get this done as quickly as possible."

After fixing several small items on a city checklist, the company's
business license now hangs in the lobby.

"We're very excited," Czarkowski said.

So is the city, which will reap the benefits from the taxable sales --
which has topped $312,000 for the city's coffers so far this year.

That represents about $9.2 million worth of retail marijuana sales,
and points to an industry that's likely in for the long haul.