Even Where It’s Legal, Pot Producers Weigh The Business Risks

Attorney General Eric Holder appeared before the Senate Judiciary Committee on Wednesday to answer questions on everything from gun control to the Department of Justice’s failure to prosecute Wall Street. But he was also asked about an issue proponents of marijuana legalization have been following closely: what the DOJ plans to do about Colorado and Washington state, which have defied federal law by legalizing recreational use of the drug.

Holder said the department is still mulling its options. “I expect that we will have an ability to announce what our policy will be relatively soon,” he told the committee — the Obama administration’s refrain since the legalization ballot measures passed in November.

In Washington state, that continuing uncertainty has been tempering hopes for a marijuana “gold rush.”

The job of setting up the legal pot market in Washington has been delegated to the State Liquor Control Board. From the get-go, board members admitted they didn’t know much about pot. They’ve held public forums to get input from people who are, shall we say, more experienced.

Longtime pot producers like John Eskola are celebrating this new reality. “It’s a very emotional thing for me,” he told the crowd at a recent forum. “It’s been a war for 40 years. The war’s over. We won.”

Maybe.

State Regulations Still Unclear

Marijuana is still illegal under federal law. President Obama’s re-election raised hopes among marijuana proponents that the feds would turn a blind eye, but last month, national drug czar Gil Kerlikowske told the Canadian news magazine Macleans that enforcement against distributors and large-scale growers would continue.

People are now trying to understand the business risks. Ryan Espegard, an attorney who’s waded into the novel field of pot production law, says his potential clients are less worried about the federal government than they are about the still-unwritten state regulations — and how those might affect the bottom line.

“If there are heavy regulations, obviously there are going to be overhead costs associated with the business that are going to keep some people away,” Espegard says. “And right now, there aren’t a whole lot of answers, because the state liquor control board is still in their rule-making process and really just getting started.”

Weighing The Expenses Of Setting Up Shop

One unanswered question, for example: How much security will the state require?

Jeremy Kelsey, who runs Medical Marijuana Patients Network, a medical marijuana outlet north of Seattle, has bulletproof glass in his facility. If his operation is any indication, the state-licensed stores will be looking at a big upfront investment.

“Of course, we have 24-hour monitoring,” he explains. “You’ve got to have a lot of ventilation, dehumidifiers, air movers, air conditioning units — all this stuff to produce high-quality cannabis.”

It’s assumed that medical pot growers like Kelsey will have the inside track in the new recreational market, since they already have the know-how from their work with medical marijuana. Even so, because of the uncertainty with the feds, Kelsey’s not going to move too quickly, even though he predicts recreational pot will make him more money.

“As far as being the first, that’s not me,” Kelsey says. “But I’m going to acquire those licenses, and I’m going to sit on them, and I’m going to watch. And when the time’s right, I’m going to make my move and certainly capitalize.”

Washington state plans to start issuing pot production licenses in August — assuming there’s no pre-emptive move by the Justice Department.

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