Marijuana dealers ponder life in legitimate business in Washington state

11/26/2012 9:39 AM

11/26/2012 9:58 AM

“I’ve been a drug dealer for more than 30 years.”

Before Election Day this year, making such a statement in public could have been considered unwise.But when Jeff Gilmore says it now, there’s pride in his voice.

Next year, when the state starts handing out applications for marijuana-growing licenses, Gilmore hopes his extensive experience with grow lights, fertilizers and irrigation systems will give him a leg up on competitors.

Gilmore, 59, a longtime Thurston County resident, said he’s been growing and selling pot since shortly after he graduated from the University of Washington back in the Vietnam War era.

“I’m an independent farmer, and I believe in small business,” Gilmore said recently. “I want to create 10,000 jobs in Washington in the cannabis industry.”

Gilmore is one of an army of black-market pot purveyors who, with the passage of Initiative 502 legalizing up to an ounce of pot for all adults, hope to make lateral transfers into the legitimate market.

The potential rewards are enormous.

If the federal government allows Washington to proceed with its social experiment, retail marijuana sales in the state could top $1 billion a year, according to the state’s Office of Financial Management, which studied impacts of I-502 before the Nov. 6 election.

Annual consumption, not including sales to out-of-state consumers who come here to take advantage of legal weed, could reach 94 tons, according to the agency.

Because the state will limit the number of growers, processors and retailers, some are regarding the licenses as permission to print money.

POT PIONEERS“Think of the novelty of this,” said Tacoma attorney Jay Berneburg. “You will be one of the first people in the entire world to legally sell marijuana. You will probably make a million dollars your first five days in business. People will be buying it just because they can.

”Over the past few years, Berneburg has become the go-to-guy for marijuana-related legal representation in the South Sound.

His clients include owners of 65 medical marijuana outlets, he said, and nearly all of them have expressed an interest in moving into the legitimate trade once the state Liquor Control Board completes its rule-making process.

“Most of my clients have expressed a desire to apply for licensing under I-502,” Berneburg said. “We’re looking ahead to as to what they might do.”

Interest is so high, Berneburg said, he’s scheduled a workshop on Saturday for his clients who want to apply for a license.

The Liquor Control Board is at least a year away from handing down the rules that will define the new industry, and that’s if the federal government doesn’t stop the whole enterprise in its tracks before then – a huge if, according to some.

The board has a new I-502 implementation page on its website, but it offers few hints about what the new rules might look like, other than to say the marijuana system will be similar to the one used to control alcohol. It also said it expects to take every bit of the time allowed — until Dec. 1, 2013 — to complete the rules.

Still, cannabis candidates are getting their papers in order.

Berneburg knows the exercise is speculative at this point. Even so, he said, it makes sense to be prepared.

“We’re putting together pre-licensing dossiers for people interested in going forward with this,” Berneburg said. Nobody knows at this point what the Liquor Control Board might require of its applicants, but Berneburg is using the state’s old liquor license requirements as a likely template.

“That way,” he said, “as soon as it does come down, they can immediately apply and be first in line.”

CHEECH AND CHONG?

For some, the idea that Washington’s grand experiment with marijuana could be staffed with a cast of characters from the Cheech and Chong days is less than reassuring.

The most idealistic of I-502’s supporters see the change as a precedent for the rest of the country and even the world. If the plan proceeds without the courts stopping it, attention will be riveted on how well it turns out.

The bill’s backers want to make sure it works.

Alison Holcomb, the attorney who ran the successful I-502 campaign, is back at her regular job as ACLU of Washington’s drug policy adviser, and she and the rest of the ACLU organization will maintain their attention, said Doug Honig, ACLU of Washington’s director of communications. “We’ll be watching it closely to ensue that the law is fully and fairly implemented,” Honig said. “We’ll provide input as appropriate.”

I-502 contains some safeguards. It bars people with felony convictions from owning any of the new marijuana stores. If it wants to, the Liquor Control Board could expand that restriction to include all growers and processors.

Still, Berneburg said that need not be a barrier. As the state moves toward implementation, he said, a new cottage industry has arisen for cleaning up the criminal histories of potential applicants who, “when they were kids, may have committed some indiscretions.”After a certain amount of time crime-free, it’s possible to ask a court to “vacate and exonerate” former felons.

“In that case,” he said, “they are allowed to say they have never been convicted.”

Medical marijuana retailers, some who have invested large sums in their businesses, are particularly eager to find roles in the new regime because chances are good the new state-licensed stores will put many of them out of business.

“Why would anybody buy a (medical marijuana) authorization anymore if marijuana is legal?” asked Muraco Kyashna-tacha, founder of the medical marijuana dispensary Green Buddha Patient Co-op in Seattle.

Kyashna-tacha said she expects the number of dispensaries now doing business, some 160 in Seattle and about 45 in Tacoma, to drop to perhaps fewer than a dozen when legal marijuana shops open. “I think they may shift into more of a service-type industry,” she said.

BLACK MARKET CONCERNS

The current concern about black marketers stepping into or subverting the legal market closely parallels concerns at the end of alcohol prohibition in Washington 80 years ago.

“It’s very nearly identical,” said William Rorabaugh, a University of Washington professor of history who has written at length about alcohol and drug policy.

In 1932, Washington voters repealed all of the state’s prohibition laws, Rorabaugh said, meaning alcohol was unregulated by the state, even though it continued to be illegal under federal law.

“People who had been bootleggers were suddenly in the business of selling beer,” he said.

As now, the Liquor Control Board was the entity designated to sort things out, Rorabaugh said, and its chairman, retired Navy Adm. Luther Gregory, handled it effectively by giving a license to nearly everyone who wanted one — even though he knew their ranks included “many scofflaws and scurrilous characters.”

But if they broke the rules, they were out forever.

Gregory essentially said, ‘We’re going to license you, but if you violate any of the terms of the license, the penalty will not be a 10-day suspension, but entire revocation,’” Rorabaugh said. “He said, ‘We’re going to call the shots and we’ll be tough about it.’”Then, as now, the concern was that if the bootleggers were not included in the system, they would undercut it and doom it to failure.

Gregory’s solution to that, Rorabaugh said, was to start out with minimal taxes to keep prices low. After the bootleggers were out of business, the state cranked up the taxes.“By 1940, Washington had the highest liquor taxes in the country,” Rorabaugh said. “It was brilliant bureaucracy at its best.”

MODERN BOOTLEGGER

Ben Schroeter is a modern-day bootlegger. Now 59, Schroeter — or “Ben Jammin,” as he sometimes calls himself — said he’s been selling marijuana illegally in the Seattle area for 38 years. His past troubles with the law make it unlikely that he’ll have a role in the new system, he said.

Whether he’ll keep on dealing illegally after the new state system is in place is an open question, Schroeter said.“By the time it (marijuana) gets to the stores, it’s likely to be more expensive than what I sell my pot for,” he said.

I-502 calls for heavy taxes — 25 percent as it moves from grower to processor to retailer and another 25 percent at the counter — plus 10 percent or more sales tax.

“The market will dictate whether I’m still in business or not,” Schroeter said.

Schroeter, a big fan of I-502, said that if the market does put him out of business, he’s fine with that.

“I’ve always done it as a service more than anything else,” he said. “If the state can put me out of business by legalizing pot, then my business plan was successful.”

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