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Medical Marijuana: New-Age Entrepreneurs And A Hungry Market

Medical marijuana dispensaries are springing up in Colorado's major cities like coffee shops, nail parlors, tanning salons or taco shops.

Though Colorado voters amended the state Constitution to allow the use and sale of marijuana for a variety of medicinal reasons ten years ago, the number of patients and dispensaries has skyrocketed in the past six months.

“This industry is like a bolting horse, running out of a stable that’s on fire,” said Sierra Neblina, owner of the Medimar Haven dispensary and wellness center in suburban Lakewood. “We need to get a hold of our own industry.”

The city of Denver now has some 250 dispensary storefronts and Boulder has more than 100.

The state already has issued more than 66,000 cards that allow holders to purchase medicinal pot legally. A recent surge in applications has produced a six-month turnaround time for processing them. Since a temporary card is issued at the time of application, experts estimate more than 100,000 Coloradans now buy medicinal marijuana legally.

Colorado Cannabis Convention
Colorado Cannabis Convention

As of April 1, the Medical Marijuana Registry at the state health department stopped accepting walk-up applications, and will only process those sent by mail.

“The changes are necessary due to the explosive growth in the number of medical marijuana applications during the past six months,” said Mark Salley, a state health department spokesman. “The number of applications increased from 270 per workday in August 2009 to approximately 1,000 per workday in February 2010.”

Marijuana Country

Like California—which was the first to OK medical marijuana in 1996—Colorado's marijuana infrastructure and culture are well ahead of the other 12 states that followed them.

Though Alaska, Hawaii, Maine, Michigan, Montana, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Vermontand Washingtonallow the practice, they are at various stages of the start-up mode.

Similar ballot measures or legislation allowing medical marijuana are pending in 14 other states this year: Alabama, Delaware, Illinois, Iowa, Kansas, Maryland, Massachusetts, Missouri, New York, North Carolina, Pennsylvania, South Dakota, Tennesseeand Wisconsin.

All of those states have a lot to learn from California and Colorado.

In the Mountain State, the spike in dispensary openings and card applications appears to be a direct result of key events--both local and national—that essentially loosened restrictions.

Attorney General Eric Holder
Getty Images
Attorney General Eric Holder

In February 2009, Attorney General Eric Holder said that the Drug Enforcement Agency, DEA, would end its raids on state-approved marijuana dispensaries, saying President Obama's election campaign position condoning medical use is "now American policy."

In July 2009, during a packed 12-hour hearing in which hundreds testified, the Colorado Board of Health rejected a proposal to limit the number of patients that could be served by each caregiver or dispensary to five.

Then in October, the Obama administration clarified Holder’s February statement, telling federal authorities not to arrest or prosecute medical marijuana users and suppliers who aren't violating local laws.

The policy decisions bolstered a business model used by most existing dispensaries--based on serving 400 or more patients--and spawned many more, and offered a measure of certainty to investors who helped bankroll the growth in retail outlets.

Regulatory Whiplash

Since, then public officials have been scrambling to control a movement that has grown into a largely unregulated industry sector that is maturing, with retail storefronts, prominent advertising and large-scale operations.

The Denver City Council passed a slew of new dispensary regulations in January, aimed at bringing order to industry chaos and revenue to city coffers.

Councilman Charlie Brown, who sponsored the ordinance, says, “Six months ago Denver and Colorado were the Wild West of medical marijuana, with unregulated and untaxed dispensaries opening almost daily and the number of registered patients soaring.”

Now, an applicant for a dispensary license must submit a floor plan and security plan and apply for a zoning permit, sales-tax license and a burglar-alarm license. Fees top $5,000 annually, plus ongoing sales tax.

Brown says crafting the ordinance was “like trying to pick your teeth with a rattlesnake.”

Nearby Boulder passed a similar ordinance in 2009. Dispensaries and grow operations there generated about nearly $74,000 in sales-tax revenue, though most of the estimated 105 businesses didn't open until September or later.

(In Los Angeles, the city council is poised to pass regulations aimed at reducing the current 545 dispensaries to about 70, mostly through license fees and zoning.)

Colorado dispensary owners and industry representatives have mostly receptive to such regulations.

Medical marijuana attorney Rob Corry says, "With taxation comes legitimacy. This industry is one of the few that is asking to be taxed and legitimized to join the rest of the business world."

“We welcome taxation and regulation,” says Jack Cary, a partner in Greenwerkz, a Denver dispensary. "It’s time for society at large to benefit from this plant, by collecting tax revenue.”

The Colorado Senate is now crafting an additional layer of regulations and fees. A bill introduced by state Sen. Chris Romer, creates new requirements for the state's dispensaries and may institute an excise tax similar to that placed on the sale of liquor.

“I believe that a highly regulated business structure is required to separate the medical marijuana industry from black market operators,” Romer says.

Once legislation is passed at the state level, Romer believes “new business people will quickly enter the market and increase the status and quality of the wellness models.”

Cary, of Greenwerkz, agrees, sounding very much like a business-schooled entrepreneur.

“There is a lot of investment money waiting on the sidelines, investors waiting to see what the rules are, waiting until an investment is not so high-risk,” he said. “I am a little surprised at how many dispensaries did pop up. Like any gold rush, any boom, there’ll be a bust. There will be a shakeout."

How It Works

In Colorado, a medical-marijuana patient must see a licensed physician who provides written documentation of a “debilitating medical condition.” As defined by the law, these maladies may include cancer, glaucoma, AIDS or HIV-positive status, seizures, severe pain or severe nausea or severe muscle spasms.

Medical use, according to the law, covers “the acquisition, possession, production, use, or transportation of marijuana or paraphernalia related to the administration of such marijuana to address the symptoms.”

A doctor’s visit typically costs about $150 and may consist of a five- to ten- minute conversation across a table. Some dispensaries host doctors on site. Web sites list regular doctors’ hours.

The state charges a $90 processing fee and the dispensaries usually adds on notary or other smaller handling charges, for a total patient cost of about $250.

Then there’s the product. An ounce of medical marijuana currently costs about $350 and is considered sufficient to last about six weeks for the average patient.

Oftentimes, a dispensary offers a discount to a patient, who then lists it as his or her “primary caregiver.” A patient may possess up to two ounces of pot or six plants for personal use, and a dispensary may have on hand two ounces of pot per patient. A dispensary may provide a grower with its patient list; a grower may house six plants per patient on the premises.

Dispensaries, however, are far more than smoking dens. Marijuana is bought and sold in a dizzying list of edible forms, such as as caramel corn made with marijuana-laced butter, medicated chocolate covered cherries, rice sticky, rice-cake treats treats, frozen pizzas made with pot. Mile High Ice Cream in Denver makes dozens of flavors with marijuana. There are bottled sodas, pills, and tinctures.

Dispensaries also sell routine and advanced drug paraphernalia, including pipes, lighters, scented candles and smokeless “delivery systems” called vaporizers, the latter of which can cost several hundred dollars apiece.

Many dispensaries have expanded far beyond the sale of medical marijuana. They offer massage, acupuncture and other alternative healing methods, usually arranging for appointments with patients and providing the space for a practitioner to operate.

There's even an industry trade group , the Colorado Wellness Association, formed in October 2009, whose public affairs officer happens to be a former state senator, Bob Hagedorn.

“I’ve visited about 80 dispensaries in the Denver metro area,” says Hagedorn said. “I’d say 10 percent are very serious about the wellness side of things. Fifty percent are interested in moving product. The other 40 percent is a balance of those two.”

Dr. Feelgood, I Presume?

Dr. Rita Starritt has been keeping regular hours at the Green Ribbon Clinic, a subsidiary of the Herban Wellness dispensary next door, on the fourth floor of a downtown Denver office building.

On a recent Tuesday, three patients sat in the waiting room filling out medical history forms similar to those handed out at any doctor’s office, while Starritt met with patients in an adjacent office.

“Very few are turned down,” she said. “Most have already read Amendment 20 to see what qualifies. Mostly I see if they meet those qualifications.”

She’s turned down people with temporary conditions, women who are pregnant or breastfeeding.

“I’m not sure it helps everybody,” Starritt said. “But I’m not adverse to recommending it if I think it will help the patient and their condition.”

Starritt says many of the people she sees complain of back pain.

“Many have tried Vicodin or ibuprofen, they’ve already tried everything else before they come here,” said Starritt.

Others don’t have health insurance and the access to traditional medicine it brings.

Consciously or not, doctors have become part of the public debate.

In August, the state health department released a study that showed 15 doctors were responsible for 75 percent of the 10,000 patients then on Colorado's medical marijuana registry. One estimated granting 1,750 cards.

Starritt, who estimates she's seen 600 patients in her part-time role, acknowledges as much in her doctor's note on the Herban Wellness Website: “I do believe that sometimes patients are fraudulent both in my regular primary care office as well as the marijuana evaluations but I think it is a doctor’s responsibility to believe his patients for the most part. I do find this incredulous, but I do not deny these patients their cholesterol or blood pressure medications because perhaps they are not completely truthful.”

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