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

Mar 6, 2013
Originally published on March 7, 2013 11:49 am

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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Transcript

AUDIE CORNISH, HOST:

We heard elsewhere in our program about testimony today from Attorney General Eric Holder. Speaking to the Senate Judiciary Committee, he addressed the issue of marijuana legalization. Holder was asked what the Justice Department plans to do about Colorado and Washington. Those two states have defied federal law by legalizing the recreational use of pot. The attorney general responded that the feds are still mulling their options.

ERIC HOLDER: I expect that we will have an ability to announce what our policy is going to be relatively soon.

CORNISH: The administration has been saying this for months. As NPR's Martin Kaste reports from Seattle, the continuing uncertainty is tempering hopes of a marijuana gold rush.

MARTIN KASTE, BYLINE: Here in Washington state, the job of setting up the legal pot market has been delegated to the state liquor control board. From the get-go, the board admitted it didn't know much about pot, and it's held public forums to get input from people who are, shall we say, more experienced. Longtime pot producers like John Eskola are celebrating the new reality.

JOHN ESKOLA: It's a very emotional thing for me. It's been a war for 40 years. The war is over. We've won.

(SOUNDBITE OF CHEERING)

ESKOLA: We've won.

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

RYAN ESPEGARD: People are trying to understand the business risks.

KASTE: Ryan Espegard is an attorney who's waded into the novel field of pot production law. He says his potential clients are less worried about the feds than they are about the still-unwritten state regulations and how those might affect the bottom line.

ESPEGARD: If there are heavy regulations, obviously, there's going to be overhead costs associated with the business that may want to keep some people away. And right now, there aren't a whole lot of answers because the state liquor control board is still in their room making process and really just getting started.

KASTE: One unanswered question: How much security will the state require?

JEREMY KELSEY: This glass is bulletproof. That box is bulletproof.

KASTE: Jeremy Kelsey runs Medical Marijuana Patients Network, a medical marijuana outlet north of Seattle. If his operation is any indication, the state-licensed stores will be looking at some big up-front investments.

KELSEY: Of course, we have 24-hour monitoring. We have...

KASTE: You've got some serious ventilation going, I can tell.

KELSEY: Yeah, yeah. We have a lot of - obviously, you've got to have a lot of ventilation. You've got to have dehumidifiers, air movers, air-conditioning units, all the stuff to produce high-quality cannabis.

KASTE: It's assumed medical pot growers like Kelsey will have the inside track in the new recreational market since they already have the know-how. Kelsey predicts recreational pot will make him more money, but because of the uncertainty with the feds, he's not going to move too quickly.

KELSEY: As far as being the first, that's not me, you know, but I'm going to acquire those licenses. And I'm going to sit on them, and I'm going to watch.

KASTE: The state plans to start issuing licenses for legal pot production in August, assuming there's no pre-emptive move by the Justice Department. Martin Kaste, NPR News, Seattle. Transcript provided by NPR, Copyright NPR.