Joint Venture

With I-502 now in effect, Seattle has become ground zero for the state’s recreational pot market

Clearing the hurdles
None of this means the region is heading for a reefer free-for-all. Despite the changing legal tide, the barriers to entering the legal pot market remain steep.
“We have to jump through hoops that traditional businesses do not,” says Oscar Velasco-Schmitz, 36, director of Dockside Co-op, a medical cannabis provider in Fremont that opened in 2011. “Nothing is easy.”

Applying for a recreational retailer license is one hoop Velasco-Schmitz, a former software engineer and restaurant owner, is in no rush to jump through. (I-502 does not apply to medical marijuana operations, which remain loosely regulated and taxed by the state—a discrepancy the Legislature is working to resolve.) For now, he’s content waiting to see what solution the state comes up with. “If push comes to shove and we have to jump into the I-502 regulatory scene, then we’ll do whatever we have to do for our patients to have access,” he says. (Below: Oscar Velasco-Schmitz, director of Dockside Co-op, a medical marijuana dispensary in Fremont, is in no rush to apply for a recreational retailer license.)

For growers, processors and retailers ready to take the recreational plunge, startup costs can be significant, given the state’s security, insurance, testing, labeling and inventory-tracking rules. Would-be potpreneurs without personal savings, an ample credit line or well-heeled friends and family quickly learn that finding funding is a crapshoot. Bank loans are not an option. Most banks won’t even give pot shops a checking account or credit card. (Federal regulations require them to report customers suspected of breaking federal law.) Investors willing to gamble on companies that directly touch the plant are needles in haystacks, too.  

Location also can be tricky. Per I-502, cannabusinesses can’t be within 1,000 feet of a school, library, playground, park, rec center, day care center, public transit center or an arcade open to minors. Factor in municipal zoning restrictions and the options diminish further. The Seattle City Council, for example, plans to restrict new retailers from operating in residential areas and historic districts.

“There’s this mad dash to find compliant locations and owners that are OK with the use,” says Burkhart, the tincture maker, who has spent more than six months hunting for a commercial space for processing his products this year. “I’ve seen ads on Craigslist where it says, ‘Not marijuana friendly,’ because they’re going to get 20 calls from other kinds of businesses and they’re going to get hundreds of calls for cannabis use.”

For Burkhart, finding a compliant location entails checking Google maps for neighboring schools and day care centers, walking the neighborhood and, if necessary, hiring a surveyor.

Local landlords have their own concerns. Many of the landlords whom Seattle real estate attorney Brian Danzig counsels worry about the security, insurance and legal implications of leasing to a tenant in the cannabis business. A number of his clients say they’d be happy to lease to cannabusiness tenants, provided they’re not put at legal risk themselves. But the “vast majority” of them don’t want anything to do with tenants in the industry, says Danzig, a Gordon Thomas Honeywell partner and chair of their Seattle Real Estate group.

The list of obstacles goes on: Dispensaries and retailers aren’t eligible for the same federal tax deductions that most U.S. companies are, because the federal government considers them drug traffickers. Without a bank account or credit card, they’re stuck running a cash-based business. Those that do land a banker—often by presenting themselves as a “wellness provider” instead of a pot purveyor—run the risk of getting their personal and professional accounts closed once the bank catches on. Above all, receiving a shutdown letter from the Drug Enforcement Administration (DEA) is not outside the realm of possibility.