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Budding Retailers Crowd Seattle Seminar on Pot-Shop Rules

Photographer: David Paul Morris/Bloomberg

Washington and Colorado became the first U.S. states to legalize recreational-marijuana sales when ballot measures passed in November. Close

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Photographer: David Paul Morris/Bloomberg

Washington and Colorado became the first U.S. states to legalize recreational-marijuana sales when ballot measures passed in November.

Sean Kearney, owner of an online sex-toy business, said he was late to the dot-com boom and doesn’t want to miss out on the next wave as Washington state sets the rules for retail marijuana sales to recreational users.

Kearney, who plans to apply for a license to open a pot shop at his warehouse, was among several hundred prospective pot retailers, growers and processors who attended a state-run seminar on the burgeoning business yesterday in Seattle.

“I feel like here’s an opportunity to get in on the new boom economy for legalized pot,” Kearney, a 42-year-old Seattlite, said at the state convention center where the seminar took place. “It’s definitely worth sticking my toe in the water and see what happens, if I should be granted a license.”

Washington and Colorado became the first U.S. states to legalize recreational-marijuana sales when ballot measures passed in November. The states are setting up systems for regulating the business, which has the potential to generate billions of dollars from levies and is drawing the attention of entrepreneurs looking for new ways to make money.

“The business will explode,” said Eli Fernandez, a 41-year-old resident of suburban Renton who plans to get producer and processor licenses. “There’s going to be lots of tourism.”

Josh Berman, 32, co-founder of 4Evergreen Group, a Seattle-based cannabis marketing and servicing company, also plans to seek producer and processor licenses to grow pot in three 30,000-square-foot spaces and sell products to retailers.

Cannabis Everywhere

“Anything you can put cannabis in, we’re going to do,” Berman said in an interview. “Everyone knows that this is the emerging industry to be involved in and everyone is trying to figure out how to get in.”

The Seattle seminar was among a handful that the Washington State Liquor Control Board plans to hold from Oct. 17 to Nov. 1 to help prospective marijuana shop owners, growers and processors get business licenses. The board developed the rules for the new industry, passing them last week. It plans to begin taking license applications on Nov. 18.

The sessions were held in two beige-and-white meeting rooms on the second floor of the convention center, identified by signs only as “WSLCB: Seattle Applicant Workshop.” Events at the site hosted by other groups included an estate-planning seminar and accounting 101 for attorneys.

Entrepreneurs were joined at the morning and afternoon sessions by lawyers, commercial real-estate brokers and other service providers. Mikhail Carpenter, a liquor board spokesman, said 500 people signed up for the meetings.

Demand Surge

“I think I will have too many clients and I will have more demand than supply,” said Joshua Fant, a 42-year-old Seattlite who owns Canna Commercial Properties. The company scouts out potential marijuana retail and warehouse space.

“The owners of commercial real estate are nervous to lease to this business because it’s so new,” Fant, who opened the company in July in anticipation of demand, said in an interview. “There are plenty of good spots on the market, but then there’s 10 percent of those or less that have willing owners.”

Kurt Boehl, a lawyer in Seattle whose services include marijuana regulatory compliance, said he anticipates a boom in business because of interest in the new market.

“The amount of people who are going to be coming into these places is going to be phenomenal,” Boehl said.

Effective Nov. 16

The liquor board’s rules, which kick in Nov. 16, limit retail licenses to 334 statewide and require tracking of marijuana from seed to sale. They require warnings saying the product is intoxicating and may be habit-forming, and restrict sales to 8 a.m. to midnight. On-premises consumption is barred.

Chad Brown, a 45-year-old Seattlite and commercial photographer, said he’s undecided about whether to apply for licenses to become a grower and processor.

“I’m not really sure we’re going to be able to make a decent profit with all the regulation,” Brown said. “It’s pretty exciting to be able to do this legally. I don’t think it’s going to be the cash cow that everybody thinks it’s going to be.”

Each applicant has to pay a $250 fee and then $1,000 a year to renew a license. Producers, processors and retailers each must pay the state a 25 percent sales tax, unless they hold both producer and processor licenses, so they will only pay the levy once.

Brian Rose, 43, and Jason Gardiner, 40, co-founders of a medical-marijuana dispensary in Renton, south of Seattle, said they plan to convert it to a recreational-marijuana shop.

Revenue Windfall

While the tax rate seems high, Gardiner said if regulators use it to clarify the rules then “it would be money well-spent, well-invested.” So far, he said in an interview, “We haven’t seen what they’re going to do with the money.”

The state may collect $1.9 billion through fiscal 2017, “assuming a fully-functioning marijuana market,” according to an August 2012 fiscal-impact statement by the Washington Office of Financial Management. That assumes producers will charge processors $3 a gram, processors will get $6 a gram and consumers will pay an average $12 a gram, or $340 an ounce.

Street prices for the drug average about $200 an ounce in Seattle, according to websites such as Priceofweed.com that report what people say they pay.

Federal law still makes possession and sale of marijuana a crime. In August, the U.S. Justice Department said it wouldn’t challenge the formation of regulatory structures to oversee recreational pot sales in Washington and Colorado, provided they prevent out-of-state distribution, minor access, drugged driving and participation by gangs and cartels, among other limits.

Questions Remain

Questions remain on banking and taxes because of federal law. Last month, the Justice Department said it had begun talks with banking regulators on how to deal with pot retailers.

Liquor board officials said budding retailers would be on their own in dealing with federal taxes.

“It’s between you and your accountant to work out,” said Mike Steenhout, the board’s comptroller.

Becky Smith, the board’s marijuana licensing and regulation manager, said the state’s rules will evolve over time.

“What we have today is probably going to be different than what we have a year from now,” Smith said in an interview.

To contact the reporter on this story: Alison Vekshin in Seattle at avekshin@bloomberg.net.

To contact the editor responsible for this story: Stephen Merelman in New York at smerelman@bloomberg.net.

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