A Tale of Two Drug Wars 1/3/2014

The Great Marijuana Experiment: A Tale of Two Drug Wars


As Washington and Colorado create rules and regulations for selling legal marijuana, in many other cities across the country pot arrests are near record highs


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By Bruce Barcott
January 3, 2014 9:25 AM ET

Legal marijuana in America is now estimated to be a $1.43 billion industry. And it's expected to grow to $2.34 billion in 2014. If those numbers hold, the 64 percent increase – a steeper trend line than global smartphone sales – would make pot one of the world's fastest-growing business sectors.


Signs of the new age abound. In Colorado, retail marijuana stores welcomed their first legal-age customers (21 and older) on January 1st. Washington state is expecting to license the first of its projected 334 pot shops by late spring. A Gallup poll taken last fall found that 58 percent of Americans supported legalization, a 10-point uptick from the year before. Alaska and Oregon will likely vote to go legal in 2014; California and five other states are expected to do the same in 2016. The legalizing states aren't going in half-assed, either. Officials tasked with ramping up a marijuana regulatory system are taking to it with a tradesman's pride. "We are going to implement Initiative 502," says Sharon Foster, the brassy chairwoman of the Washington State Liquor Control Board, at a public hearing last fall. "This state is not going to allow it to fail."


But these gains tend to obscure the dismal reality playing out in many other states. As Colorado and Washington license pot growers and sellers, cops elsewhere continue to carry out marijuana busts at a rate of one every 42 seconds. If you drop a gram of Sour Diesel on the sidewalk in Seattle, a police officer may help you sweep it up. Do that in New Orleans and you could face 20 years hard labor.


What we're witnessing now is a political movement giving birth to an economic awakening. The struggle to end the War on Drugs – at heart a movement to stop the mass incarceration of black men – is creating one of the greatest business opportunities of the 21st century.


At a recent drug-reform conference in Denver, Drug Policy Alliance executive director Ethan Nadelmann acknowledged the uncomfortable transition that's now occurring. Those who have suffered the most in the War on Drugs and those who have struggled against it, he noted, may not be among those who profit from its conclusion. "The capitalist forces at work in a prohibitionist market are violent and brutal," Nadelmann said, "but the capitalist forces at work in a legal market are even more brutal in some respects. We know that the people who may come to dominate this industry are not necessarily the people who are a part of this movement."


That may be a necessary price to pay. For the War on Drugs to end, Colorado or Washington must succeed. That will require risk-taking entrepreneurs, not movement leaders. If both states fail, it may be impossible for others to follow.


Fortunately, they're beta-testing two distinctive ways of regulating legal pot. For now, Colorado has a simple, vertically integrated medical-marijuana industry where retailers grow and process most of the pot they sell. Colorado will have a flexible limit on the amount of pot that may be grown. Washington, on the other hand, is breaking marijuana production into a three-tiered system that mimics the alcohol industry, where growers sell to processors, processors sell to retailers, and retailers sell to consumers, and the state strictly caps the amount of pot that can be grown.


There are other quirks. Colorado allows small-scale home cultivation. Washington does not. Colorado gave existing medical-marijuana (MMJ) operations first priority for adult-use licenses. Washington didn't, forcing MMJ owners into a license lottery with newcomers who've never grown or sold a single bud.


It doesn't much matter which system works, as long as one does. Then we'll be able to mark 2014 as the year control of marijuana passed from drug cartels and weed dealers to government inspectors and shopkeepers.


In the weeks and months before New Year's Day, a.k.a. Legal Day One, Colorado's marijuana industry was running like a well-oiled machine. To get a taste of the nation's first state-legal system, I spent a day last fall with Tripp Keber, the walking-and-talking embodiment of marijuana's future.


Keber is a balls-out, no-apologies, empire-building capitalist. In 2010, the 45-year-old former real-estate developer founded a company called Dixie Elixirs & Edibles. Dixie makes THC-infused soda, candies and baked goods and sells them to medical-marijuana dispensaries across Colorado. In just three years, Keber has built Dixie into one of the industry's leading brands and now has ownership stakes in 17 cannabis-related companies, including three MMJ America dispensaries that are about to become adult-use retail shops. As we roll through Denver in Keber's black Ford Expedition, he can't stop pitching his vision of the glories to come.


"In Colorado, 100,000 patients drove a $300 million medical-marijuana industry last year," he says. "Now think about the adult-use market. Studies show that about 10 percent of the public has a relationship with cannabis. Ten percent of Colorado's 5 million residents, that's half a million people. We get 60 million visitors every year. Even if only five percent of those tourists make a purchase, that's 3 million people a year." He lets the numbers sink in. "We're talking about hockey-stick growth," he says.


"Wall Street analysts believe there are going to be two or three billionaires minted in this industry in the next 10 years," he says. "I'm not saying I'm going to be one of them, but this kind of opportunity comes around only once in a generation."


We pull into a light-industrial district in south Denver. "Smell that?" Keber says. "Cannabis." One of Keber's main grows is housed here in an unmarked 25,000-square-foot warehouse.


Inside, Jake Salazar, CEO of MMJ America, walks us through a sophisticated operation run by a dozen technicians, rooms blazing with computer-controlled light, temperature and circulation systems, every potted plant tagged with a unique UPC. "We're going at full capacity to get ready for January 1st," Salazar says. Craig Kloppenberg, the company's compliance officer, stops by to check the latest transport manifest. "Every bit of the plant is tracked through bar codes," he says. "We record wet weight, stems, leaves, buds and waste."


Without those bar codes, adult-use pot probably wouldn't exist. Four years ago, Colorado's medical-marijuana scene was a picture of mayhem. "With no state or city regulations, there was some pretty sketchy stuff going on," says Sam Kamin, a professor of law at the University of Denver who researches marijuana policy. Robberies and gunplay were not uncommon; DEA officials suspected that some shops were supplied by international drug cartels. Colorado cracked down in 2011 with rules that required dispensary owners to register with the state, pass criminal-background checks, pay taxes, install security systems, grow 70 percent of their own product and carefully track the inventory. State officials weren't worried about maximizing tax revenue. "It was all about making it easy for them to regulate the industry," says Henry Wykowski, a former federal prosecutor who now operates one of the cannabis industry's leading law firms. "Vertical integration eliminated the need to deal with multiple entities in the chain."


The new regulations purged the industry's bad actors, who couldn't pass the background checks, and small-timers, who couldn't afford to scale up. Only the strong and the clean survived. "When regulation came into play, we had everything together," Jan Cole tells me. Cole, 45, owns the Farm, a Boulder dispensary that's widely seen as a prototype high-end cannabis shop. Everything in the dispensary is upscale and female-friendly: polished wood floors, antique display cases and no bro-culture swag. "I knew the importance of a bookkeeper," she says, "and I've paid taxes on every gram I've ever sold." Even so, the transition wasn't easy – or cheap. "We had a number of lean months," she says.


Two years under these stricter regs has left Colorado with a well-audited MMJ industry. So when adult-use pot went legal, the first retail licenses went to dispensary owners already in the system. "It took months to get my medical-marijuana license," Keber says. "For our adult-use permits, I was in and out of the interview in about 30 minutes."


Near the end of our day together, Keber joins the Dixie Elixirs marketing team in the company's new manufacturing facility in east Denver, where marketing director Lindsay Jacobsen, 31, unveils four designs for Dixie's new aluminum soda bottles. Colorado's adult-use regs require opaque packaging, so the company's glass bottles will soon be phased out. "We're still playing with the color," says Jacobsen. "We're aiming for sophisticated but fun, without being too young."


Too young, of course, is the third rail for a company like Dixie Elixirs. When adult-use goes live on January 1st, the eyes of the world will be watching Colorado, and anything seen as marketing to kids could undermine the entire movement. "There are a lot of ways this could go wrong," Kamin later tells me. "A rise in DUIs, increased child access, diversion across state lines, and some criminal element slipping into the regulated side of the industry. It could be as simple as a tractor-trailer full of marijuana stopped a mile across the Utah border. That would not be good."


Jacobsen turns the conversation to the beverage's THC content: 75 milligrams. Colorado and Washington aren't just rolling out a regulated marijuana industry. They're opening two of the largest psychotropic-dosing experiments ever conducted. Both states have limited marijuana-infused food and beverages to 100 milligrams of THC per package. The number's roundness is a dead giveaway. When it comes to dosage and what adults can handle, nobody really knows. There seems to be a big difference between smoking, vaping, eating and drinking in terms of how much THC hits the bloodstream. But "the science isn't there yet" in terms of knowing what an appropriate limit might be, says Mark Kleiman, the UCLA public-policy professor who advised Washington's liquor control board on its marijuana regulations. It's not there, of course, because the government has made it virtually impossible to study marijuana. So we end up with a limit of 100 milligrams per packaged brownie.


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