Colorado pot shops face closure as tough state rules take effect

Nearly a fifth of Colorado's medical marijuana dispensary operators could be forced out of business in coming weeks because of new state rules barring some convicted felons from the pot business, federal drug authorities say.

The Drug Enforcement Administration reviewed requirements under a new state law to see how many felons could be forced out of business. The DEA estimates that up to 18 percent of current dispensaries may be shuttered by the no-felon rule.

After years of leaving marijuana rules mostly to local officials, the Colorado Legislature this year required medical marijuana centers to apply for state licenses by Sunday, an effort to bring some regulation to the state's anything-goes medical marijuana industry.

To get a license, dispensary owners have to pay hefty fees ranging from $7,500 to $18,000 and show that they haven't been convicted of felonies in the last five years. Owners with felony drug convictions face a lifetime ban from the business.

The felony figures, first reported by KUSA-TV, bear out officials' fears that former drug dealers and drug users have flocked to Colorado's nascent medical marijuana industry, made legal under a 2000 amendment to the state constitution. Including less serious crimes, the DEA says about 28 percent of pot shop owners have criminal records for drug offenses.

"There's people who are in the marijuana business strictly to make a profit and not what was portrayed to the voters, which was care for very sick and imminently dying people," said Kevin Merrill, assistant special agent in charge for the Denver field division of the DEA.

Marijuana advocates say the no-felony rule will likely just drive affected pot sellers back to the black market.

"I'm sure there are places that are going to close their doors, and what's sad is that a lot of people are just going to go back to the underground market, and that means no taxes to the state, no quality control over the marijuana product," said Danyel Joffe, a Denver lawyer who represents medical marijuana growers and sellers.

Medical marijuana was cleared by Colorado voters more than a decade ago, but the industry took off last year when the federal government signaled that it wouldn't seek prosecution against marijuana sellers who follow state medical marijuana rules. Coupled with a state decision not to regulate how many patients a caregiver could provide pot for, the federal signal gave rise to more 1,000 dispensaries statewide.

The proliferation prompted state lawmakers to adopt the state's first pot-shop licensing plan last session.

An even bigger blow to many existing pot shops could take effect Sept. 1, when medical marijuana dispensaries will be required to produce 70 percent of all the pot they sell.

That means that marijuana businesses won't be able to outsource production to large-scale growing greenhouses — something small pot shops often have to do because of the time and expense involved with growing pot. State authorities say the grow-your-own requirement will likely mean the end for small-time operations.

"People are already closing their doors," said Jake Browne, general manager of The Releaf Center, a Denver medical marijuana center. The Releaf Center has 2,600 patients and is prepared to grow enough marijuana to stay in business, but Browne said many dispensaries won't be able to meet the requirement.

"You have a lot of people who got into business thinking, 'Hey, I'm going to run a store,' and now they're going to have to run a store and a growing operation, and they're not prepared for that," Browne said.

One pot grower getting out of the business is Mark Rose, who opened Grateful Meds in Nederland, Colo., in 2009 but has had to turn over ownership because of a 2000 felony conviction for pot possession.

"There's a mass exodus," said Rose, 50, who gave his pot shop to a business partner with a clean criminal record and plans to become a consultant. "They're treated us worse than they do Mafia folks."

It's unclear how long it'll take for the state to start closing pot shops that don't meet the new requirements. Matt Cook, who will lead enforcement of Colorado's new pot licenses for the state Department of Revenue, says he anticipates 2,200 applications for state licenses to sell medical marijuana. But he said he has no idea how long it'll take to process the applications because he only has three employees and no supplies to process them.

Asked how long it would take to start rejecting applications, Cook said with a sigh, "There really is no way of knowing."

Cook said that rejected pot sellers could ask for administrative hearings to challenge their rejections.

But Joffe warned that Colorado's licensing rules could backfire. She said that many so-called "ganjapreneuers" are still skittish about disclosing information that could land them in federal prison.

Although the federal Department of Justice has indicated it won't pursue federal drug charges against marijuana sellers following state medical marijuana laws, Joffe said many in the marijuana business aren't eager to see what happens if the federal agency's position changes.



Colorado Department of Revenue marijuana guidelines: