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Colorado shows pot industry's risks, rewards

Jun 3, 2013 - By Peter Frost, McClatchy-Tribune News Service

DENVER -- At Leela European Cafe, a quirky, 24-hour coffee shop and bar in the heart of downtown, a bartender was quick with her thoughts on Colorado's experience with the legal sale of medical marijuana.

"It's really easy to get," said Cara Wanek, 25, who says she uses it to calm her anxiety, boost her appetite and help her sleep. "And it's delicious."

That's exactly what Illinois is trying to avoid.

While Colorado is not quite the Wild West of medical marijuana, it offers a window into the opportunities and consequences that arise when a state allows the legal sale of a long-banned drug.

The state's therapeutic cannabis industry launched in earnest in late 2009, triggering a "green rush" that boosted the state's economy. Big Marijuana added thousands of new jobs, revitalized aging industrial warehouses and shuttered storefronts, and generated millions of tax dollars for the federal, state and local governments.

At the same time, state officials acknowledge they were unprepared to license, inspect and regulate medical marijuana businesses, leaving millions of fees and taxes uncollected and a significant swath of the industry unchecked. And recently released police data show a modest uptick in certain crimes near marijuana businesses in Denver.

But as the nation's first highly regulated, for-profit market, Colorado has served as a model for other states seeking to get in on the action.

In crafting legislation that would allow for the legal sale of the drug to certain patients beginning in 2014, Illinois lawmakers looked to build upon the experience in Colorado, where pretty much anyone with a long-ago injury can get a doctor's approval to purchase up to 2 ounces of pot at a time -- enough to stuff two small sandwich bags.

Illinois' proposed statute is far more restrictive, placing tighter limits on who can legally purchase the drug and where it can be grown and sold.

The bill, which would allow people with 42 defined conditions to purchase the drug legally over a four-year trial period, was approved by the Senate on May 17. It awaits the signature of Gov. Pat Quinn, who has said he is "open-minded" about the prospect.

As the governor contemplates a decision, experienced pot entrepreneurs in and around Denver are watching closely with the hope that the time and money they've spent shaping and supporting the Illinois bill will pay off.

"Everyone is looking at Illinois and New York because that's where the population is," said Kayvan Khalatbari, a 29-year-old Nebraska native who was one of the pioneers in the Denver marijuana scene. "The ball is rolling, and with more and more states coming on all the time, we see opportunities everywhere."

If Quinn signs the bill, Illinois would become the 20th state, plus the District of Columbia, to allow the sale of medical marijuana. Dispensaries could open as soon as next year.

In Colorado, legalization of the drug for medicinal purposes was approved by voters in 2000. But because the drug remained illegal at the federal level, most users remained underground, growing as many as six plants each for their own medical needs.

The industry didn't emerge until 2009, after an Obama administration memo suggested that federal authorities would not aggressively challenge state laws.

Almost overnight, Colorado was swamped with retail dispensaries and large-scale operations to grow the plants. The state, which didn't have an adequate regulatory or tax structure in place, soon had more weed shops than Starbucks.

By the next spring, when lawmakers scrambled to pass regulations, more than 2,000 companies had filed with the state to sell medical marijuana.

"We didn't get off to a great start because we didn't have the time or the staff to tool up," said Ron Kammerzell, the Colorado Department of Revenue's enforcement director. "We're still, in a way, playing catch-up."

At the end of 2010, the first year of regulated medical marijuana in Colorado, the state's industry had more than 1,100 businesses, including dispensaries and manufacturers of marijuana-infused products, according to state statistics.

Today, there are 675.

"A majority of the people who came in in 2009 to make a quick buck are either broke or in jail," said Norton Arbelaez, a tall, loquacious Oklahoma native who practiced medical malpractice law in Louisiana before he and a friend founded River Rock Wellness, a two-store medical marijuana operation in Denver.

"There were a lot of bozos in this business in the beginning," Arbelaez said. "For the most part, those of us still around are the ones who are doing it right."

In the roughly three years since the regulations took effect, sales have ballooned to nearly $200 million, generating $5.4 million in state sales tax in 2012.

In addition, operators have paid the state more than $10 million in application and licensing fees.

The most successful of Colorado's 479 registered retail dispensaries log annual sales greater than $3 million.

Kayvan Khalatbari's venture, Denver Relief, started with $4,000 and a half-pound of marijuana.

Wedged between a salon and an urgent care center on Denver's near south side, the 25-employee operation expects sales of $1 million to $2 million this year.

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