Pubdate: Sun, 27 Jun 2010
Source: New York Times (NY)
Page: BU1
Webpage: http://www.nytimes.com/2010/06/27/business/27pot.html
Copyright: 2010 The New York Times Company
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Website: http://www.nytimes.com/
Details: http://www.mapinc.org/media/298
Author: David Segal
Bookmark: http://www.mapinc.org/find?253 (Cannabis - Medicinal - U.S.)

When Capitalism Meets Cannabis

BOULDER, Colo. -- ANYONE who thinks it would be easy to get rich
selling marijuana in a state where it's legal should spend an hour
with Ravi Respeto, manager of the Farmacy, an upscale dispensary here
that offers Strawberry Haze, Hawaiian Skunk and other strains of
Cannabis sativa at up to $16 a gram.

She will harsh your mellow.

"No M.B.A. program could have prepared me for this experience," she
says, wearing a cream-colored smock made of hemp. "People have this
misconception that you just jump into it and start making money hand
over fist, and that is not the case."

Since this place opened in January, it's been one nerve-fraying
problem after another. Pot growers, used to cash-only transactions,
are shocked to be paid with checks and asked for receipts. And there
are a lot of unhappy surprises, like one not long ago when the
Farmacy learned that its line of pot-infused beverages could not be
sold nearby in Denver. Officials there had decided that any
marijuana-tinged consumables had to be produced in a kitchen in the city.

"You'd never see a law that says, 'If you want to sell Nike shoes in
San Francisco, the shoes have to be made in San Francisco,'" says Ms.
Respeto, sitting in a tiny office on the second floor of the Farmacy.
"But in this industry you get stuff like that all the time."

One of the odder experiments in the recent history of American
capitalism is unfolding here in the Rockies: the country's first
attempt at fully regulating, licensing and taxing a for-profit
marijuana trade. In California, medical marijuana dispensary owners
work in nonprofit collectives, but the cannabis pioneers of Colorado
are free to pocket as much as they can - as long as they stay within the rules.

The catch is that there are a ton of rules, and more are coming in
the next few months. The authorities here were initially caught off
guard when dispensary mania began last year, after President Obama
announced that federal law enforcement officials wouldn't trouble
users and suppliers as long as they complied with state law. In
Colorado, where a constitutional amendment legalizing medical
marijuana was passed in 2000, hundreds of dispensaries popped up and
a startling number of residents turned out to be in "severe pain,"
the most popular of eight conditions that can be treated legally with
the once-demonized weed.

More than 80,000 people here now have medical marijuana certificates,
which are essentially prescriptions, and for months new enrollees
have signed up at a rate of roughly 1,000 a day.

As supply met demand, politicians decided that a body of regulations
was overdue. The state's Department of Revenue has spent months
conceiving rules for this new industry, ending the reefer-madness
phase here in favor of buzz-killing specifics about cultivation,
distribution, storage and every other part of the business.

Whether and how this works will be carefully watched far beyond
Colorado. The rules here could be a blueprint for the 13 states, as
well as the District of Columbia, that have medical marijuana laws.
That is particularly the case in Rhode Island, New Jersey, the
District of Columbia and Maine, which are poised to roll out programs
of their own.

Americans spend roughly $25 billion a year on marijuana, according to
the Harvard economist Jeffrey Miron, which gives some idea of the
popularity of this drug. Eventually, we might be talking about a
sizable sum of tax revenue from its sales as medicine, not to mention
private investment and employment. A spokesman for the National
Organization for the Reform of Marijuana Laws says hedge fund
investors and an assortment of financial service firms are starting
to call around to sniff out opportunities.

"We're past the days when people call here to ask if marijuana will
give men breasts," says Allen St. Pierre, the executive director of
NORML. "Now, the calls are from angel investors, or REITs - people
who are looking for ways to invest or offer their services."

What happens when pot goes legit? How does the government establish
rules that allow the industry to flourish, but not run rampant? And
given that this is all about medicine, what about doctors, some of
whom have turned medical marijuana consultations into a highly
lucrative specialty?

These and dozens of other questions are now being answered in cities
like Boulder, an affluent, whole-grain kind of college town where the
number of dispensaries - anywhere from 50 to 100, depending on whom
you ask - is larger than the number of Starbucks and liquor stores
combined. During a recent visit, it was clear that for every
marijuana seller and physician who thinks that the rules are too
strict, murky or fluid, there are others who can hardly wipe the
smile off their faces.

"When I visited in September, I looked around and saw that there were
only four dispensaries in Boulder, and they were all right on
campus," says Bradley Melshenker, co-owner of the Greenest Green and
formerly a medical marijuana seller in Los Angeles. "We went into one
and saw like 30 kids in the waiting room, and I thought: 'This is
crazy. We've got to come.'"

YOUR first foray into a medical marijuana center is slightly
disorienting, like breathing underwater during your maiden scuba
dive, or watching the Red Sox win the 2004 World Series. Everything
in your past tells you that the experience is impossible, but at the
same time, you know it is happening.

Forget the furtive transactions that have defined American pot
dealing since the dawn of the dime bag. The best of Boulder's
dispensaries display their product in the sort of glass cases found
in jewelry stores or high-end bakeries.

The people behind those cases, known as "budtenders," like to think
of themselves as sommeliers, although the names of the strains for
sale will never be confused with chardonnay: Bubble Gum, Sour Kush,
God's Gift, Grand Daddy Purp and Blue Skunk.

"This will throw you for a loop," says Michael Bellingham, owner of
the Boulder Medical Marijuana Dispensary, who is holding a jar of
Jack the Ripper, one of more than a dozen strains he sells. "It's
very serious, very strong; it goes right to your brain."

With a couple of exceptions - Mr. Bellingham among them -
interviewing pot sellers is unlike interviewing anyone else in
business. Simple yes-or-no questions yield 10-minute soliloquies.
Words are coined on the spot, like "refudiate," and regular words are
used in ways that make sense only in context. One guy kept saying
"rue" as though it meant "reluctant," as in "I think the state was rue to act."

Many have a long history with marijuana, and they remain - let's just
run with it - rue to share their names. One dispensary employee
swears that his hippie parents christened him Onefree, but he prefers
to be called Dave and everyone calls him Van.

A few dispensary owners declined to be interviewed; many are still
wrapping their heads around the idea that what they do is legal. And
none of the owners offered a look at their "grow," as indoor,
hydroponic crops are known. On that subject, everyone became bashful.
There are strict rules about the size of grows and, of course, at the
federal level, marijuana remains a "Schedule I Controlled Substance,"
alongside heroin and L.S.D.

Most owners, though, were happy to show off their wares at retail,
and it's stuff that has little in common with the Cheech-and-Chong
era of this drug. State-of-the-art pot is dense and loamy and comes
in exotic shades of green and lavender - like shag carpeting made in
a jungle. Most customers buy a gram or two at a time, and a lot of
dispensaries offer loyalty cards - buy a lot, get some free. If
smoking doesn't appeal, there are lots of pot edibles, like cookies,
fudge, butter, candy bars, muffins, coffee and ice cream.

"We had a milkshake night here a few weeks ago," says Lauren Meisels
of the Greenest Green. "The place was packed."

The marijuana merchants in Colorado, like trailblazers in any
business, had to make a lot of basic decisions when they started.
Among them: What should a for-profit medical marijuana dispensary
look like, anyway? State law says that the cannabis has to be in
"limited access areas," but as far as interior decorating mandates
go, that's it.

So there's variety. The Greenest Green looks like a bar in Amsterdam,
with a chalkboard announcing the day's offerings in colors
reminiscent of Starburst Fruit Chews, as well as a stereo playing
reggae. Until a new law went into effect, patients could "medicate"
on the premises, with options that included a $5 hit of hash oil from
an elaborate bonglike device called a skillet.

The Green Room has a Pottery Barn in Bohemia feel, with an espresso
bar and a separate room for a massage therapist. Another, Dr. Reefer
- it's the name of the dispensary and the trade name of the owner -
is proudly ramshackle, in part because it hasn't been thoroughly
renovated since a restaurant moved off the premises.

"This used to be a hot dog place called What's Up Dog and my place
was in the basement," says Pierre Werner, Dr. Reefer himself. "When
What's Up Dog closed, I moved in the very next day, and I've been
open every day since."

Mr. Werner, for the record, is not actually a doctor. Rather, as he
puts it with a note of pride and defiance, he's a "three-time
convicted felon for possession of marijuana with intent to sell."
That history, as well as his habit of standing near the side of the
road and waving a huge Dr. Reefer sign at passing cars while shouting
"come get your meds," makes other dispensary owners, not to mention
some local politicians, wince.

After all, they're trying to create respectability - maybe even some
class - and Dr. Reefer's not helping.

If there is a historical precedent for what's now happening in
Colorado, it could be the 1920s and the era of Prohibition. During
America's dry age, the federal alcohol ban carved out an exemption
for medicinal use, and doctors nationwide suddenly discovered they
could bolster their incomes by writing liquor prescriptions.

Pharmacies, which filled those prescriptions, and were one of the few
places whiskey could be bought legally, raked it in. Through the
1920s, the number of Walgreens stores soared from 20 to nearly 400.

Prohibition also enriched adventurous sorts at every level of booze
production and consumption, from grape farmers and distillers to the
owners of speakeasies. Many of them went on to earn legitimate
fortunes once Prohibition was repealed.

More than a few in the marijuana business say they believe they are
early entrants in a market that could be huge, as laws and public
attitudes shift in their favor. But a lot depends on what
restrictions are placed on sales, as Colorado's example suggests.

SELLERS here will tell you that to succeed in this business, you need
to keep two essentials in mind.

First is the importance of nabbing a lot of "caregiver rights," which
every person with a medical marijuana certificate can assign to a
seller of choice. The caregiver rights of each patient, as customers
are universally known, allow a dispensary to sell the marijuana of
six plants, though the pot can be sold to anyone with a certificate.
So the more caregiver rights a dispensary collects, the more pot it can sell.

The second essential: grow your own. A pound of marijuana can be sold
at retail for somewhere between $5,500 and $7,500. To buy that
quantity wholesale will cost about $4,000. Grow it yourself and the
same pound will cost just $750 to $1,000.

"It's like any retail environment," says Sean Fey, a co-owner of the
Green Room. "Given overhead expenses, you're not going to make a lot
of money if your margins are 40 or 50 percent, which is what you'll
earn if you don't grow your own marijuana. But you'll get 70 to 80
percent margins if you do."

Pot sales so far are expected to generate about $2.7 million in
license fees, in addition to the more than $681,000 in sales tax
collected from July 2009 to February 2010. These figures seem a
decent-enough start, but are far less than the $15 million in annual
taxes predicted by some of the state's more optimistic lawmakers.

A batch of regulations known as Amendment 1284, signed by the
governor on June 7, is expected to put many dispensaries out of
business, eliminating the amateurs and semipros who jumped in because
there was nothing to stop them, but greatly strengthening those who
have the wherewithal to remain standing.

At least that is the hope of Matt Cook, the senior director of
enforcement at the state's Department of Revenue and the man behind
Colorado's pot regulation system.

"I've been coming up with regulations for different industries for 30
years," he says. "Alcohol, tobacco, car dealerships. I just took the
best practices from those businesses, and I was allowed input of my own."

The new rules, many of which will take effect over coming months,
treat dispensaries a bit like pharmacies and a bit like casinos.
Felons will soon be prohibited from owning dispensaries. (Mr. Werner
is selling the Dr. Reefer store.) Twenty-four-hour Webcams will be
trained on every growing facility and dispensary in the state. There
are restrictions on hours, new rules for licensing, labeling and on and on.

Dispensary owners, generally speaking, aren't complaining. The more
regulated the business becomes, the easier it will be to operate,
says Ms. Respeto of the Farmacy. The company, which was co-founded by
her father, has big ambitions: to become a medical marijuana
dispensary franchise and do for Super Silver Haze what Rite Aid did
for pills. The store in Boulder is actually the company's fifth;
there are three in California and one in Denver.

"I used to manage Whole Foods stores on the East Coast," she says.
"And that was a lot easier. Because in the food industry, you know
what the standards are."

Ms. Respeto exudes a kind of soccer-mom normality, which dovetails
neatly with a core element of the Farmacy's marketing plan. The
company would like to purge the business of its counterculture,
glazed-and-confused image and turn it into something mainstream.

"What you hear about is a bunch of 18-year-olds who just want to get
high," she says. "You'll see little of that in our establishment.
What you'll see instead is the 50-year-old woman who suffers from
arthritis and this is her choice of pain medication."

The medical dimensions of this industry seem in perpetual tension
with its stoner roots. All dispensary workers sound utterly sincere
about the health benefits of marijuana, and each has a story about an
elderly man whose chronic back pain vanished when he was introduced
to the healing powers of Sour Diesel.

These are true stories, and there's no doubting that pot helps a lot
of people who are in genuine pain.

But when was the last time your pharmacy had a milkshake night?
Selling "dosage controlled" scoops of chocolate peanut butter ice cream?

Judging from three days of visits to a dozen places, the sweet spot
of the dispensary demographic seems to be 20- to 30-year-olds, all of
whom, when asked, say they have an ailment - insomnia, menstrual
cramps or an assortment of painful-sounding bone problems.

"I fractured a vertebra in my back," says Keith Aten, who has just
swung by the Green Room to buy a medicated cookie and a caramel. "It
hurts if I'm having a heavy walking day."

Mr. Aten is a tall 21-year-old wearing a T-shirt with a zombiefied
version of the Scarecrow from the Wizard of Oz, lurching down the
Yellow Brick Road yelling "Brains!" Like every patient, Mr. Aten is
assiduously courted with freebies by dispensaries who covet his
caregiver rights.

"My guy used to give me a free half-ounce every month, but he just
dropped it to a free quarter-ounce," he said. "So I'm looking around
to see who has a better deal. I've visited about 30 places so far."

To acquire this V.I.P. status, Mr. Aten first needed to pass a
medical exam certifying that marijuana is appropriate medicine for
him. And that exam, surprisingly enough, might be the easiest money
in this aromatic field.

TO see why, visit the office of Dr. James Boland, about nine miles
outside of Boulder, in a strip mall in Broomfield. The place is a
marvel of work-flow efficiency. In a matter of minutes, patients are
greeted by a secretary, have their papers notarized by a notary
public and are escorted to a waiting room - which on this day has a
TV playing an instructional video on making your own hash.

"Today, I saw about 40 patients, but sometimes we'll have 100
patients come through here," Dr. Boland says, sitting in his small
examination room.

He is dressed in dark green scrubs, like a man on a work break from a
MASH unit. Until last year, he earned a modest income handling
worker's comp claims for a local furniture manufacturer.

Then he decided to enter medical marijuana full time, and he opened
this place, which technically isn't a doctor's office, but a
"managing/marketing firm" called Relaxed Clarity. His employees are
allowed to do what he can't - show up in dispensaries to pitch his services.

And when patients arrive, they find a highly streamlined operation.
Each examination lasts three to five minutes.

"All you're doing is answering the narrow question: does this person
have a condition that qualifies them?" says Dr. Boland. "And do they
have anything else that would place them at risk for an adverse
outcome if they use medical marijuana?"

Yes to the first question, no to the second - those are the answers
about 90 percent of the time, he says. And he stands by every one of
those decisions.

BY the standards of a workaday medical practice, this is simple and
headache-free work, according to Dr. Boland, unless you count the
hidden-camera TV journalists who have dropped by hoping to find
misconduct, or the lingering fears that if you're too liberal with
your signature, the state's medical board might discipline you. A
very small number of doctors approves a majority of certificates, and
Dr. Boland is one of the most prolific of them all.

In one year alone, working just three days a week at Relaxed Clarity,
he's seen 7,000 patients, each paying an average of $150 for a visit.
He takes out a calculator and does some quick arithmetic. That's more
than $1 million, grossed in 12 months.

"There's no waiting for an insurance company to pay you a fraction of
what you billed," Dr. Boland says. "It's just boom, you know, cash on
the spot. So you can make a significant amount of money doing this."

Like the Farmacy, Dr. Boland hopes to take his medical marijuana
business national, opening Relaxed Clarity offices in other states.
The difference is that he is profitable, while the Boulder outpost of
the Farmacy, at least for now, is not.

The lack of profits has been a source of stress for Ms. Respeto.
Maybe as the industry matures, it will become more predictable and
easier to navigate, less given to panicky phone calls about
unforeseen U-turns. Until then, the good news is that she is
surrounded, day in and day out, by one of the best-known relaxants on
earth. The bad news is that she is one of the very few people in this
business who does not smoke pot.

"I go home at night," she sighs, "and have a glass of wine."
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