When Capitalism Meets Cannabishttp://www.nytimes.com/2010/06/27/business/27pot.html
By DAVID SEGAL
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.”