This is What Legalization Looks Like 

A quarter-mile down a gravel driveway from the cluster of mailboxes on Washington state's Vashon Island, past second-growth conifers and bare alders, James Clark's homestead could just as easily be in Fieldbrook as on this Manhattan-sized moraine lumped in the middle of Puget Sound.

Clark is at work on a project that, for the moment at least, couldn't take place in Humboldt County. He is showing off his plans for a fully licensed marijuana farm that he hopes will enable him to retire early from his job as an electrical inspector in Seattle, a 15-minute ferry ride away. At 56, he's a self-described novice at the business, so he enlisted a consultant with 30 years' experience from California's North Coast, and networked with a business support group that sprang up here, the Vashon Island Marijuana Entrepreneurs Alliance. He's hoping to raise 50 pounds a year that he can sell for about $2,700 a pound to licensed cannabis shops, though he acknowledges that both the price and the yield are speculative until his farm starts producing, and the budding legal market sets a price for his product.

Yet he is already contending with a different kind of legal hassle than growers have faced in the past. He'll need a building permit for the 8-foot fence that must surround his farm. He'll have to monitor the perimeter and entrance with security cameras and keep the recordings on file for the state to review. When he harvests, he'll have to notify the state so inspectors can visit his "quarantine room" and confirm the weight of his crop. If he wants to expand his operation beyond the size of a generous three-bedroom ranch house, he'll have to notify his neighbors and ask the county for a conditional use permit.

Clark, a rangy man with a bit of stubble at the tail end of the weekend, shrugs his shoulders and swipes his tablet to re-check his spreadsheets. Despite the looming gauntlet of paperwork, he is forging ahead on faith that his pot farm will prove worthwhile even on the sliver of land that's left after allowing for the shade of the omnipresent Northwestern conifers and an 80-foot-wide buffer around his crop required by county zoning rules.

This is what legalization looks like. Washington is in the midst of a seismic shift in the cannabis economy, as profound as the twransformation wrought by the advent of medical marijuana more than a decade ago. Over four weeks in November and December, the Washington Liquor Control Board was inundated with a tsunami of more than 4,900 applications to grow, process, and retail cannabis — applications that will now be vetted by a team of just 14 inspectors. The new law seeks to tame a Wild West of medical and black market marijuana and replace it with a regulated, taxed system for getting marijuana from grower to customer in accordance with rules even tighter than those that apply to hard liquor.

Given last month's Field Poll that showed 55 percent of California voters favor legalizing recreational cannabis, the revolution now underway in the Evergreen State offers a hint of what Humboldt County might expect at some point in the next few years. Four legalization initiatives have already been submitted to the state attorney general's office this year, and Lt. Gov. Gavin Newsom is heading a panel to plan a 2016 proposition.

"It isn't a matter of if legalization will happen, it's a matter of when and what it will look like," says Kristin Nevedal, who chairs the Emerald Growers Association. Think of legalization like an incoming meteor that threatens to drive one of the region's most iconic and lucrative careers into eventual extinction. Its impact will separate the black and grey market growers who can adapt from the ones whose skills are fit only for the era of outlaw pot.

When Washington voters ended marijuana prohibition in November 2012, the news was followed a month later by celebratory smoke-ins where for the first time in three generations people could indulge without fear of state prosecution. Then state officials began the gritty work of erecting a bureaucracy to regulate an enterprise that has been sheltered from red tape by its illegality, and more recently by the gray area of medical cannabis.

Some of Washington's rules are aimed at keeping monopolies from capturing the cannabis business. Producer licenses are limited to about two-thirds of an acre, and no one can hold more than three of them. Growers may also hold a processing license, but not a retail permit — preventing any company from controlling a segment of the market all the way from seedling to smoker. No one can own more than one-third of the retail licenses for any city or county. "On the surface, it's friendly to small farmers," says longtime Humboldt resident Mike Jakubal, who is making a film about marijuana culture called One Good Year.

Other regulations bring an entirely new level of rigor to the marijuana industry. Applicants undergo fingerprinting and background checks, and will be rejected if they have a significant criminal record. (In most cases, a felony conviction in the last decade or two misdemeanors in the last three years would disqualify an applicant. But with a realistic view of who might be interested in — and expert at — the marijuana business, aspiring licensees get a free pass in the background check for two counts of simple possession.) The applicants will have to be squeaky-clean in other ways, though. They have to demonstrate they raised the capital for their business legally and identify all of their investment partners, landlords and lenders.

Once their business is up and running, they'll have to pay the state a 25-percent excise tax on their revenues and track each plant from seed or clone to sale. State inspectors will be welcome at their property unannounced, at any hour of the day or night. (In a nod to Fourth Amendment concerns, licenses won't be granted for in-home growing, since the surprise inspections would violate privacy protections.) Buds intended for smoking, as well as any extracts, will have to be tested for potency and contaminants at a certified lab. Recreational home-grown? Strictly verboten.

Facing this thicket of new legalities, Washington resident "Paul" (not his real name) has decided to keep his small-scale grow scene in the black market. Originally just a recreational smoker, he registered as a medical cannabis patient to cope with chronic nausea that can leave him debilitated. He runs a five-light indoor marijuana garden year-round, with another 15 plants in an outdoor plantation during the abbreviated Northwest summers. Sporting a trim grey beard and ponytail, and clad in a denim jacket and tie-dyed bandana, he would blend right in at Arcata's Cafe Mokka or a boogie at Briceland's Beginnings.

With the scope of his monetary ambitions limited both by personal taste and his disability, he couldn't imagine jumping through the hoops it would take to become licensed. "I can't make too much commitment to structures and schedules right now," he says. If his nausea kept him from caring for his plants for a few days, he fears he could lose an entire crop. "I'm assuming it would take a fair amount of monetary commitment to set up an operation that would be worth licensing," he says. "I'm not sure that even six or eight lights would be worth it."

Besides, he is philosophically committed to operating on a small scale, despite the risk of criminal prosecution. "I'm limited by the fact that I like to have a relationship with the people I'm doing business with," he says. And he is counting on his customers — recreational users, as well as fellow patients who buy from him outside the dispensary system — to return that loyalty. "Unless the legal market seriously undercuts the illegal market, people will keep getting it from who they have always gotten it from," he predicts. And with a 25-percent excise tax collected at two or three steps of the process, plus sales tax, payroll taxes, licensing fees and other costs of running a legal business, Paul figures his market is probably secure in the short term.

It turns out that this result comes as no surprise to state regulators. Just 15 percent of the state's cannabis consumption will funnel through licensed stores at first, according to projections made by consultants to the state's Liquor Control Board, rising to about 40 percent in 10 years.

But over time, Paul will face increasing competition from the likes of Alex Cooley, a 29-year-old entrepreneur who runs and co-owns the Solstice Cooperative, an indoor marijuana farm in Seattle. Cooley has been in the medical marijuana trade since his college days, to hear him tell it, and stayed in the industry after having the misfortune of earning his teaching credential when Seattle public schools were in the throes of a hiring freeze. Cooley touts his renovated 9,000-square-foot warehouse space as the first fully permitted marijuana farm in the state, a status he achieved after nine months of paperwork, inspections and code upgrades, including $100,000 in insulation to meet current energy requirements.

In November, Cooley's firm applied for licenses to develop up to two acres of cannabis farming for recreational use. They're planning to locate in Ellensburg, on the east side of the Cascade Range, where the climate is drier and sunnier. "Even though the Seattle power grid is very green, we needed to shrink our environmental footprint and put 'em in the sun," Cooley says. Starting fresh with an outdoor farm will also help Cooley finesse the uncertainty facing the medical marijuana market in Washington. The Liquor Control Board has recommended that the state legislature abolish the dispensary system and allow medical cultivation only for patients' personal use. If Cooley wanted to convert his Seattle operation to recreational production, he'd have to empty it out and grow new plants from scratch. "We're not going to turn our backs on our medical patients," he says — a stance that can also keep his Seattle site in operation through the proposed year-long transition period when dispensaries and recreational stores would coexist side by side.

After blazing a trail for indoor marijuana farms through Seattle's permit requirements, the rules for recreational licensing will be a matter of course for Cooley, a clean-cut man who, aside from his nickel-sized disc earrings, cuts a mainstream figure. With 15 employees and an annual production likely to top 1,000 pounds, greenhouses the size of Solstice's may eventually achieve economies of scale that threaten operations like Paul's.

If anything, that increase in scale — at least in the licensed market — will be hobbled by the liquor board's tight limits on growing and retailing. The state will permit just 2 million square feet — 46 acres — of growing space, but the applications it's reviewing would cover several hundred acres. The same exuberance applies on the retail side, where regulators capped the number of retail shops at 334 statewide, but received more than 1,300 applications. In Seattle, where the board plans to allow just 21 marijuana stores, 11 times as many aspirants are hoping to get lucky in the lottery that will award licenses among qualified applicants.

In a crowded field like this, old-fashioned business acumen in management and marketing will be crucial to success. Business consultant Shango Los — who professes no prior experience in the pot trade — founded the Vashon Island Marijuana Entrepreneurs Alliance after four clients approached him with cannabis-related business ideas, and he concluded that small-scale local growers needed help staying competitive so that bigger operations don't drive land values out of reach and displace family farms. "If someone doesn't step in and make the island safe for growers," Los says, "someone will come in from off-island and eat our lunch."

Five hundred miles south, somewhere in rural Humboldt County, "Jack" listens to the nutshell version of Washington's marijuana licensing system and tries to imagine what it would mean for him. A 40-something father of two and a grower for more than a decade, Jack has embraced California's dispensary system after selling on the black market for most of his career in cannabis. "My approach to it is to take the least gray, most legitimate path possible," he says. "I want it to just be part of what we do here on our farm — we produce food and medicine."

Jack says he enjoys the predictability of sales and price that he gets when dealing with a clinic, even though it's less than he was getting before. "It's pretty much a normal business with normal taxes," he says. But for him, the dispensary market hits the sweet spot between the black market and Washington-style licensing efforts. "Would I be interested in something with a lot more red tape?" he asks. "I think that would go over like a lead balloon. Everyone on the producer side is enjoying something a little looser."

Filmmaker Jakubal can understand this attitude. "A lot of Humboldt growers will find state licensing really tedious after a couple of decades of a free-for-all where they could do what they want," he says. But he foresees a different kind of payoff. "There's a certain freedom to being an outlaw in the hills," he says. "But to not worry about helicopters flying over or your driver getting intercepted in Nebraska, and not having to teach your kids to lie about what you do — that's another kind of freedom."

Legalization of recreational cannabis poses profoundly different challenges in California than in Washington and Colorado, according to the Emerald Growers Association's Nevedal. "In Colorado and Washington, when medical cannabis was made legal, they created a regulatory framework, so when they became adult-use states, they already had an industry with parameters," she says. "In California, they'd be regulating an industry that is likely the largest cash crop in the state, and has had 17 years of unregulated development."

Even if California does legalize recreational cannabis, the transition won't be instantaneous. Humboldt will still have growers like Paul, who stay in the black market as long as they can — an attitude borne out by the large margins racked up against Proposition 19 in southern Humboldt three years ago. "It will be easy to remain a petty outlaw," Jakubal predicts. But over time, he anticipates that market pressures will take a heavier toll than legal restrictions.

"The industry got started in Humboldt because of its political and social climate and its geographical remoteness, not because of its great farmland, abundant water and pot-friendly weather," Jakubal says. "People are going to have to ultimately face up to the fact that their remote, off-grid homestead on a steep north slope can't compete with flatland-grown weed." Instead, he suggests, it will take shrewd marketing, efficiency and professionalism to go up against growers in Sonoma County, for instance, who have better weather and are located closer to urban customers. One place to start, says Nevedal, is for growers to look at whether their property is permittable, in terms of water sources, water storage, and preventing agricultural run-off — thinking about it the way you might consider any other crop grown for sale.

With legalization looming on the horizon, the traits that made for success in the marijuana business are about to change — not instantly, but over a period of years as people adjust to the possibility of buying their pot as conveniently and straightforwardly as their liquor. How Humboldt growers and regulators respond will determine whether the county's latest economic driver runs out of steam like the many booms, from gold to old-growth timber, that have come and gone before it.