Potential entrants to new pot industry sort through risk, uncertain future

The rent is paid up, but Dave and Tanya Burdick’s 3,000-square-foot warehouse sits empty in a nondescript business park on Guide Meridian Road, along the north edge of Bellingham’s city limits.

Inside, Dave Burdick can already envision rows of cannabis seedlings filling the currently hollow shell space, as long as he and his wife get a license to open one of Washington state’s first legal marijuana production facilities.

But until they have that license, they must wait.

“We’re paying for a building that we’re not even using,” Tanya Burdick said.

The Burdicks are one of 126 applicants in Whatcom County (as of Jan. 26) seeking licenses from the Washington State Liquor Control Board to legally produce marijuana for commercial sale. Under the business name Green Liberty, they are seeking licensing for a “Tier 2” production facility, which the liquor board defines as being between 2,000 square feet and 10,000 square feet. The couple has also applied for a license to process marijuana after it is grown.

While the development of Washington’s future pot retail stores has attracted more attention, nearly 3,000 applicants are vying to be the state’s first producers of legal marijuana. It is not certain how many will get approval from the liquor board, which has been tasked with regulating the new industry created by the passage of Initiative 502 in 2012.

The liquor board has not set a limit on the number of licensed pot growers in the state, in contrast to a limit of 334 retail licenses it will issue. But the board has set a statewide cap of 2 million square feet on the amount of allowable space for pot production. Two million square feet equals just about 46 acres.

While some lingering regulatory questions are starting to get answers, the risky nature of entering an industry that is among the first of its kind has made the future uncertain for aspiring commercial pot cultivators.

At Green Liberty, located at 5373 Guide Meridian Road, the Burdicks already run a small collective garden for medical marijuana. They first opened in December 2013.

The company’s commercial production would be kept separate from its medical side, which would continue to be operated by Dave Burdick’s brother, Mike.

Tanya Burdick said finding a suitable location, with a landlord open to their type of business, was one of their most difficult challenges. It took them nearly 10 months to find a spot, she said.

But even with a home base secured, they now must pour money into their production space and prepare for inspections from the liquor board, all while not knowing for sure if they will receive a license.

Danielle Rosellison, who has applied with her husband to open a Tier 2 production facility on Division Street in Bellingham, has also had to take on heavy financial risk. Trail Blazin’ Productions, the Rosellison’s company, has had startup costs of nearly $275,000, she said.

“We’re all in, and it’s scary,” Rosellison said.

Adding to the risky endeavor of starting a marijuana business, legal questions over the rollout of decriminalization remain.

Nearly three dozen of Washington’s 75 largest cities have adopted moratoriums on pot businesses, according to The Center for the Study of Cannabis and Social Policy, a Seattle-based think tank. This effectively outlaws the new industry in an entire chunk of the state.

I-502 backers say that these moratoriums could allow the current illicit pot market to continue while also reducing the amount of revenue to the state expected to be generated through taxes. But several local governments, including the Lynden City Council—which adopted a moratorium last September—have indicated they want more time to allow for public input on new regulations.

In response to a request from Sharon Foster, the chair of the liquor board, Washington Attorney General Bob Ferguson issued a formal opinion Jan. 16 saying that I-502 does not specifically prevent city or counties from banning or enforcing their own regulations on marijuana businesses within their jurisdictions.

Foster, in a Jan. 16 statement responding to Ferguson, said she believed the legal opinion will come as a disappointment to those who voted to approve I-502. She was not certain how Ferguson’s opinion might change the implementation of the initiative.

The Bellingham City Council placed, and later rescinded, a moratorium on pot business last summer. Interim rules for such enterprises are currently in place as the city attorney crafts permanent ones.

Kurt Nabbefeld, a senior city planner who has taken the lead role in local implementation of I-502, said the goal is to have permanent rules in place by no later than April of this year.

He said the city’s interim rules generally mimic those adopted last fall by the liquor board. But Bellingham’s regulations do go a bit further in some areas, he added.

The city’s interim rules currently restrict pot growing and processing to industrial areas, while retail stores can be located in industrial or commercial zones, Nabbefeld said.

Bellingham is also not allowing outdoor growing operations, and licensed processors will need to work within facilities that meet the proper city building codes, he added.

In terms of who receives actual licenses, those decisions are up to the state liquor board, Nabbefeld said, although the city does have the ability to make comments on applications when it deems necessary.

“We’re clearly trying to utilize the state rules that are in place but still balance the desires and needs of the community,” Nabbefeld said.

Licenses are not expected to be issued by the liquor board for at least another month.

Whether marijuana businesses will be able to keep cash in banks has been another urgent concern for the fledgling industry.

With marijuana still an illegal drug in the eyes of the federal government, banks have worried that opening doors to pot business could leave financial institutions vulnerable to losing their federal insurance status or being prosecuted for criminal activity.

But comments last month from U.S. Attorney General Eric Holder, the nation’s top lawyer, have indicated the Obama Administration is open to allowing banks to work with pot businesses free from those fears. Washington state regulators say such a move on the federal level is a positive sign for the I-502 rollout.

The liquor board’s 2 million-square-foot cap on growing space brings up additional worries. If the board approves more production licenses than that cap can accommodate, some growers, particularly those applying for large operations, might have to try to make do with far less space than they have anticipated.

Danielle Rosellison said she expects pot retailers will have significant demand to deal with once the first stores open later this year. Producers with prior growing experience would have an advantage over those just beginning to learn the ropes, she said.

“We’re going to help get rid of the black market,” she said. “We’re going to make this a legitimate business.”

Back at Green Liberty, Dave Burdick said he was not greatly concerned about competition. He believes there is highly lucrative potential in the business.

Since high-quality cannabis takes experience and skill to grow, he thinks market forces will weed out a lot of weaker products.

“You get what you put into that plant, and if you don’t really care, [if] you’re just there for the money and don’t care about the quality, it’s going to be crap,” he said. “But if you do care about it, and you treat it like gold, it will pay you back.”

Evan Marczynski, associate editor of The Bellingham Business Journal, can be reached at 360-647-8805, Ext. 5052, or evan@bbjtoday.com.


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