Growing Pains: Entrepreneurs cash in on medical marijuana
October 7, 2010
More in Part 2
Growing Pains Part 1
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Growing Pains Part 3
Medical marijuana centers in Routt County
21600 U.S. Highway 40, Milner
■ D and C Medical Marijuana and Therapeutic Massage
410 S. Lincoln Ave., Suite A7, Steamboat Springs
200 S. Sharp St., Oak Creek
■ Natural Choice
1707 Copper Ridge Spur, Unit A, Steamboat Springs
■ Rocky Mountain Remedies
2750 Downhill Plaza, No. 205, Steamboat Springs
Steamboat Springs — Kevin Fisher and Ryan Fisher are building a medical marijuana empire, though it may not be obvious from their unassuming warehouse office in the industrial area west of downtown Steamboat Springs.
The thirtysomethings who traded their bartending jobs for those of medical marijuana entrepreneurs — part horticulturalists, part marketing geniuses and part health care workers — have made Rocky Mountain Remedies one of the largest medical marijuana centers in Colorado based on number of patients served. And Steamboat's first medical marijuana center continues to expand, with its owners choosing to reinvest their profits back into the business.
More than 1,000 regular monthly patients later, it's fair to say their efforts are paying off.
Those 1,000 regulars are less than half of the more than 2,000 customers from Northwest Colorado and the Front Range who have bought medical marijuana and other products at Rocky Mountain Remedies since it opened.
After launching the business with only the money in their bank accounts and by maxing out credit cards, Ryan Fisher said they've spent "well, well into the six figures" investing in five grow operations, two of which are in Boulder. They paid more than $20,000 in fees in August for a state license. The business pays sales and property taxes and rent in Steamboat. It employs 16 full-time workers, which includes the owners.
"Our mentality is we're in it for the long haul, reinvesting, taking care of our customers," Ryan Fisher said. "Priority two is taking care of ourselves. Sometime down the line, we'll make money, but it's still a baby. Every day you've got to feed it and take care of it."
The timing was right for Kevin Fisher and Ryan Fisher, who are not related. They opened Rocky Mountain Remedies on the cusp of a statewide medical marijuana explosion.
Medical marijuana became legal for patients with certain conditions and a doctor's recommendation when Colorado voters approved Amendment 20 in 2000. But it took nearly a decade for the industry to really take root.
In fall 2009, the industry took off after the Colorado Board of Health opted not to impose a limit on the number of patients a caregiver could provide marijuana for. When the U.S. Department of Justice instructed prosecutors not to use federal resources against people who comply with state medical marijuana laws, the doors blew wide open.
The medical marijuana patient registry at the Colorado Department of Public Health and Environment soared to an estimated 113,0000 as of Aug. 31. And medical marijuana centers started popping up all across the state beginning in 2009 — especially in Denver, Colorado Springs and Boulder — reaching an estimated high of 1,100.
"This whole new business had sprung up," said Matt Brown, director of public policy for Coloradans for Medical Marijuana Regulation, an advocacy group for center owners, growers and infused-product makers.
Allen St. Pierre, the director of the National Organization for the Reform of Marijuana Laws in Washington, D.C., said in an August telephone interview that Colorado is unique, having moved from self-preservation (patient and caregiver model) to commercial distribution (medical marijuana centers) without the law changing first.
Colorado's first medical marijuana center opened in Denver in 2004. Michael Lee, owner of Cannabis Therapeutics in Colorado Springs, said in August that his center was the second to open statewide in 2004 and is the oldest surviving center.
"I was the only one in the state operating for five years. Now there's 230 in Colorado Springs," Lee said.
St. Pierre said only after the industry was established did state government decide to step in and regulate it. He said only Montana is doing something similar.
"It's happening," St. Pierre said. "And it's not happening anywhere else in the country like this."
Martin Chilcutt, the creator of Amendment 20, moved to Kalamazoo, Mich., five years ago but returned to Denver in summer 2009 to see how far Colorado's medical marijuana industry had come.
A former member of the U.S. Navy and a psychologist, Chilcutt said in a telephone interview that he was prompted to become an activist for marijuana legislation after seeing the positive impacts it had on the veterans he counseled. But as a longtime marijuana user, Chilcutt said he already knew marijuana's medical benefits after using it while battling cancer and to treat post-traumatic stress disorder.
Chilcutt, now 76, said the intention of Amendment 20 was to create a constitutional amendment that, when approved, couldn't be changed. He said it also was written, with the help of his attorneys, in a way that was flexible enough to allow the medical marijuana industry to evolve into a workable system that would benefit patients.
Some, including Colorado Attorney General John Suthers and Colorado Chief Medical Officer Ned Calonge, have said they don't think medical marijuana centers were what voters had in mind when they approved Amendment 20.
But Chilcutt said a corner drugstore type of distribution model was part of the evolution he envisioned for Amendment 20. He just didn't know to what extent.
"I was shocked," Chilcutt said. "My very first impression was, 'Great. It's working. Dispensaries are opening, and there's a delivery system in process.' I thought, 'This is great. It's wonderful.'"
Despite the number of medical marijuana centers — formerly called dispensaries — some owners like Flo Barron, who runs Little Brown House on South Broadway Street in Denver, don't mind being in close proximity to other centers.
Little Brown House, which opened in September 2009, is within 1,000 feet of medical marijuana centers Colorado Wellness, the Green Depot Medical Dispensary and Walking Raven.
"There's enough patients to go around," Barron said. "So it's not like we're in competition."
Starting a business
Before the medical marijuana center boom, Brian Vicente, executive director of Sensible Colorado, an advocate for the state's medical marijuana patients, said downtown Denver was littered with empty commercial spaces.
"Now they're operating businesses, paying property and sales taxes," Vicente said in August at his downtown Denver office. "It's kind of turned around the Denver real estate market. It's a fascinating transformation occurring in small towns and big towns. These are contributing members of the community."
What started on the Front Range soon spread to Northwest Colorado.
Kevin Fisher and Ryan Fisher saw an opportunity. They compared it to starting a tech company before the dot-com bubble burst. The 34-year-olds, who moved to Steamboat for the mountain lifestyle after graduating from college about a decade before, said they wanted to open a business. But after working in Steamboat's service industry, they said starting a restaurant wasn't on the list.
The "like-minded enthusiasts" thought they could make a medical marijuana center work.
"Many people in town had been self-medicating for years," Kevin Fisher said. "We thought if we could get early in the market, any market, it was the thing to do."
Rocky Mountain Remedies, along with D and C Medical Marijuana and Therapeutic Massage, opened in August 2009 before the city of Steamboat Springs had an ordinance in place to regulate marijuana centers.
Instead of enacting an emergency moratorium, the city allowed the businesses to open, with operating guidelines from the Steamboat Springs Police Department.
"Because it was our first stab, we could have either regulated them or let them go unregulated," City Council President Cari Hermacinski said.
In August 2009, city leaders imposed a 90-day moratorium on new medical marijuana centers, giving them time to draft an ordinance that would help regulate the industry at the local level. The ordinance, approved in January 2010, capped the number of centers within city limits at three — two for-profit businesses and one cooperative model. Natural Choice Co-op, which has since dropped the co-op from its name, was the third.
Provisions included distance restrictions from schools, mandatory background checks for owners, restricted hours of operation and limited exterior signage.
Other Routt County communities have taken different approaches.
The Yampa Town Board opted against drafting an ordinance to regulate centers, treating them as any other business after J-Jay Johnson opened LMS Dispensary in December 2009 in Leisure Mountain Studio, a coffee shop and gallery he operated with his wife.
The Oak Creek Town Board also opted against an ordinance regulating medical marijuana businesses, instead referring the issue to the Oak Creek Planning Commission. Commissioners approved a land-use change and recommended the Town Board approve a request for Mary's, a medical marijuana center proposed by a group led by Stagecoach resident Jacob Wise.
For unincorporated Routt County, the Routt County Board of Commissioners approved a conditional land-use application May 11 for Aloha's in Milner. Commissioners required owner Chris Ward to make 17 changes to his facility, which transformed it from a residential to a commercial building. The business opened July 4. The county since has imposed a moratorium on new medical marijuana centers through Dec. 31.
When Aloha's opened, it was the sixth medical marijuana center operating in Routt County.
Ward got his start in the marijuana business at a young age.
Among the Hawaiian décor on the walls of his Milner medical marijuana center, there's a framed photo of a 6-year-old Ward in the grow fields on Kauai, where he lived until he was 18.
Ward, a former pro skier and father of five, said Aloha's grossed $22,000 in sales in its first month, but very little of it was profit. Ward, who since has sold medical marijuana and related products to more than 360 patients, said he hopes the business makes money.
"Maybe I'll make a profit someday, but right now, I'm still covering things," said Ward, who also owns snow and tree removal businesses in Steamboat.
Wise, owner of Mary's in Oak Creek, has a similar story.
"I pay sales tax, but unfortunately sales haven't been tremendous," he said. "I've invested a tremendous amount, but basically — so far — I haven't made anything."
Special Agent Mike Turner, of the Denver office of the Drug Enforcement Administration, said he has heard estimates that medical marijuana centers on the Front Range make as much as $25,000 to $50,000 a week.
Industry advocates and center owners said that's not close to being true.
In part because they've reinvested so much back into the business, Kevin Fisher and Ryan Fisher said they're making little money. Kevin Fisher said he would have made more money bartending during the past year.
"Everyone thinks the margins are huge and fat," he said. "It's not. It's not like growing a few plants in your closet and selling that on the street with no overhead. It's a completely different paradigm than that."
Despite the success of Rocky Mountain Remedies and the fact Steamboat has two other medical marijuana centers, the impact to city sales tax revenues is unclear.
Kim Weber, revenue supervisor for Steamboat, said the city generated $5,000 to $30,000 in sales tax revenue from medical marijuana since August 2009. She declined to provide a more specific figure because Steamboat has only three medical marijuana centers, and she didn't want to single out any one business.
Although the sales tax revenue generated from medical marijuana in Steamboat is a fraction of what the city collects annually, other Colorado cities are starting to reap the financial rewards provided by medical marijuana centers.
A March 2010 story in the Boulder Daily Camera indicated that Boulder generated nearly $74,000 in sales taxes from medical marijuana sales in 2009. City officials estimated that Boulder's 105 centers could generate nearly $300,000 in sales tax this year.
The Colorado Springs Gazette, in an Aug. 12 story, reported that medical marijuana sales generated $327,000 in sales tax revenue there since January 2009. Colorado Springs, which at one time had 230 medical marijuana centers, generated $111,000 in sales tax revenue in 2009.
Brown, of Coloradans for Medical Marijuana Regulation, and Vicente, of Sensible Colorado, said there has been no recent study based on the existing number of medical marijuana cardholders to determine how much the industry could generate. They said the medical marijuana industry has the potential for an annual economic impact of hundreds of millions of dollars across Colorado.
"It is significant, but we don't have approximate numbers," Brown said.
Regulating the business
At about the same time Steamboat and other Colorado communities were creating ordinances to regulate medical marijuana businesses, the Colorado General Assembly's 2010 legislative session was just beginning.
Rep. Tom Massey, a Poncha Springs Republican, said in early September that the proliferation of medical marijuana centers led to some problems for law enforcement and issues related to safety and security.
"We felt like we had to deal with it in the legislative session," Massey said in a telephone interview, adding that he and Sen. Chris Romer, a Denver Democrat, had started drafting the legislation the previous summer.
Massey said the legislation that would eventually become House Bill 1284 was intended to regulate Colorado's medical marijuana industry from "top to bottom."
Coloradans for Medical Marijuana Regulation was born after the industry took off and when people needed guidance about how to open a business, Brown said. Then a small-business consultant, Brown said people who wanted to do things the right way and without getting into trouble approached him for help.
Brown said the regulations were welcome from a business community desperate for guidance and clamoring to prove it wasn't operating illegally.
"We knew going into this that the regulations would require a lot of depth, creating an agricultural commodity and medical product from scratch," he said. "In that context, House Bill 1284 is better than anyone could have expected."
Legislators in May approved House Bill 1284 along with Senate Bill 109, which was designed to regulate the medical side of the industry. Gov. Bill Ritter signed both into law in June.
Among its many provisions, the legislation doesn't permit medical marijuana center owners who have been convicted of a drug felony in the previous five years from the time they submit an application for a business license.
Another provision required centers to certify they were growing 70 percent of their marijuana by Sept. 1. Center owners also are subject to storage and transportation, sanitation, labeling, record-keeping and tax-reporting requirements, in addition to extensive security provisions.
Matt Cook, senior director of enforcement for the Colorado Department of Revenue, has said center owners would be monitored by video surveillance from "seed to sale." During an August telephone interview, Cook said he was about to start working with medical marijuana stakeholders to draft rules that would regulate the industry.
He released 92 pages of draft rules after the first rule-making meeting with stakeholders Aug. 27.
Some center owners said the new legislation weeded out those business owners who wanted only to make money and didn't care about the well-being of patients.
"It's getting rid of all the fakes and underground people," said Emanuel Bernal, owner of Platte Valley Dispensary in Denver, during an interview at Cannabis Festiva. Dubbed the largest outdoor cannabis festival in Colorado, the event was held Aug. 21 at Dick's Sporting Goods Park in Commerce City.
But not everyone in the medical marijuana industry was pleased with the legislation.
At the Medical Marijuana Business Alliance meeting held at Casselman's Bar & Venue in downtown Denver, Laura Kriho, of the Boulder-based Cannabis Therapy Institute, said the legislation merely outlines new ways for people to go to jail.
"For every new regulation they add, there's going to be a new penalty," she said.
Improving the image
What Kriho sees as prohibitive, many in the medical marijuana industry see as an opportunity to prove their legitimacy.
Cheryl Brown, president of the Medical Marijuana Business Alliance, said the organization works to promote and protect the industry.
"The image we want to portray to the rest of the community is it's a legitimate industry, one of the fastest-growing in the state," she said at the meeting."We're putting people to work, small businesses are being created, and it's excellent revenue for counties, cities and the state. Everybody is getting a piece of the action."
House Bill 1284 required medical marijuana centers, growers and infused-product makers to apply for a state license by Aug. 1. The cost of the fees, which ranged from $7,500 to $18,000 for a single license, forced J-Jay Johnson to close LMS Dispensary in Yampa.
Johnson said the system wasn't conducive to small businesses like his that served older patients, mostly with marijuana edibles and tinctures.
Cook said 809 centers submitted applications in three categories based on the number of patients who have designated them as their primary centers. Based on its number of patients, Rocky Mountain Remedies is among the 36 largest in the state.
In addition to the centers, 1,219 growers and 309 infused-product makers submitted applications, bringing the total number of Colorado medical marijuana businesses to 2,337. Cook said the applications generated more than $8 million in fees.
Although the fees can't be used to offset the state budget deficit, according to the legislation, they will be used to regulate the medical marijuana industry. Cook said the legislation gives him the authority to hire one person for every 10 centers to conduct background checks, inspections and investigations — about 80 new employees if he needs all of them.
The Colorado Department of Public Health and Environment also was given the authority to hire additional employees, tripling the size of its Medical Marijuana Registry staff to 33. The registry, which reviews medical marijuana patient applications, receives about 1,000 pieces of mail a day, the majority with $90 application fees enclosed.
In addition to Rocky Mountain Remedies, which expected to employ 20 full-time workers by Oct. 1, other local medical marijuana centers are putting people to work. Ward, who owns Aloha's, now has six employees, three who are full time. And Jacob Wise, owner of Mary's in Oak Creek, wants to expand his tincture business to employ more than 30 in the next two years.
Most of those involved in the medical marijuana industry acknowledge that House Bill 1284 requires more work this legislative session and in sessions to come. But Rep. Massey said it's a good start.
"Overall, I think we did a pretty good job of crafting a comprehensive regulatory structure, and we're hearing from other states that want to use it as a model," Massey said.
Part 3 Blazing the trail: Municipalities across the state have been forced to weigh in on the marijuana debate. The months ahead will shape the industry.
What you missed
Part 1 Seeds of controversy: It took nine years for Colorado's medical marijuana industry to take off after Amendment 20. Some worry it's now out of control.