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Originally published Wednesday, September 5, 2012 at 9:04 PM

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Seattle pot dispensaries finding business climate no longer sunny

Amid increased federal resistance to dispensaries, the gilt is suddenly off Seattle's medical marijuana's "green rush." Many storefronts quickly closed after the federal Drug Enforcement Agency mailed shutdown letters last month.

Seattle Times staff reporter

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Just three weeks ago, Seattle's booming industry of medical-marijuana dispensaries celebrated at Hempfest by offering free joints to new customers and advertising heavily in four marijuana-industry publications.

For a moment, Seattle's dispensaries — about 145, according to city data — outnumbered its 139 Starbucks locations. More sought to open each month, especially in pot-friendly Seattle.

Now, the gilt is suddenly off medical marijuana's "green rush." Dispensaries have closed without notice. Three former dispensary operators appear headed to federal prison. And others are leaving once-promising, if legally questionable, businesses altogether.

In late August, Seattle's office of the federal Drug Enforcement Agency (DEA) sent letters to the landlords or operators of 26 dispensaries, threatening property forfeiture unless the storefronts closed within 30 days. The letters targeted dispensaries within 1,000 feet of schools or playgrounds, but DEA spokeswoman Jodie Underwood said relocation "will not make any of them legal."

The letters arrived three days after owners of two Seattle dispensaries pleaded guilty to federal drug-dealing or money-laundering charges. Combined, the effect was swift. Most of the targeted businesses — nearly all in Seattle — closed the same day.

As Washington voters weigh an initiative to legalize recreational marijuana use this fall — and potentially strong push-back from federal authorities — a chill has settled on the local medical-marijuana industry. Some of the dispensaries are looking for new sites farther from schools. But sites are scarce because landlords are now even more skittish.

"If clamping down on the industry was the goal, then mission accomplished," said Aaron Pelley, a Seattle attorney who represents medical-marijuana dispensaries.

State vs. federal law

Dispensaries are not authorized by Washington's medical-marijuana law, but the storefronts have relied on a broad interpretation of a 2011 amendment to the law that authorized 10-patient, 45-plant "collective gardens."

Some cities, including Seattle, accepted that interpretation, viewing dispensaries as a safe alternative for legal medical-marijuana patients.

But federal authorities — here, in Spokane and in some other medical-marijuana states — increasingly treat dispensaries as dealers of a drug that remains illegal under federal law.

In a statement Wednesday, Underwood said the DEA believes "the operation of any marijuana-distribution storefront is illegal under both federal and state law" and that dispensaries will continue to be subject to "an ongoing enforcement strategy."

Shoreline's Green Hope Patient Network was among the businesses ensnared in the conflict between local tolerance and federal prohibition. Shoreline last year issued Green Hope a dispensary permit, which banned — as do federal drug-sentencing enhancement rules — any marijuana sales within 1,000 feet of a school.

The DEA apparently considers the Interurban Trail, a multiuse trail adjacent to Green Hope, a "playground" and sent the dispensary a shutdown notice. Green Hope quickly closed.

The DEA's interpretation puzzled Ian Sievers, Shoreline's city attorney. Including the trail as a prohibited area would eliminate most available locations in the city. "It's a little vague" to call the trail a playground, he said.

"Close, and close fast"

John Davis, co-founder of Hempfest and CEO of a West Seattle dispensary, began tracking the DEA letters as they arrived last month.

Some dispensaries plan to stay open the full 30 days, although those operators are "changing their mind 20 to 30 times a day," he said.

But the "fear" and "nervousness" were so pervasive that two dispensaries that did not receive letters closed as well, Davis said.

And most that did get letters shut down, despite startup costs, including security and renovation, of $30,000 and up.

"This is not something you can fight," said Doug Hiatt, a criminal defense attorney and longtime advocate of legalizing marijuana. "My advice has been to close, and close fast."

Seattle regulates dispensaries lightly, requiring only that the storefronts get business licenses and abide by city codes. That has helped make Seattle the dispensary heart of Washington, with the mayor, City Council and City Attorney Pete Holmes all advocates of legalization.

Holmes said the DEA letters were "a pretty soft touch," compared to other states, where federal agents summarily raided and closed dispensaries, and reiterated a consistent federal message.

"If there was one sacred cow of all of marijuana-dom regulations, it's to not be within 1,000 feet of a school," Holmes said. "The fact that these knuckleheads wanted to push the rule, it makes me have no sympathy."

And the city, he noted, still has more than 100 dispensaries. "I think we have plenty of capacity."

Bidding war

Dustin Guse co-founded and helped run the Nebula dispensary in the University District for more than a year. But after receiving a DEA shutdown letter last month, apparently citing a preschool in a nearby church, he promptly did so, and says he's finished with the industry.

Guse said Nebula was barely profitable.

"I don't want to go to jail," said Guse, 30, a Navy veteran. "I'm done."

But others are not. Real-estate broker Tom Gordon, who specializes in siting dispensaries, said there is a bidding war among would-be dispensary operators for a prime spot near Dick's restaurant in Seattle's Wallingford neighborhood.

That is in part because other landlords are so leery. "The first question: Is this associated with medical marijuana?" said Gordon. "They'll either hang right up, or hang up after a few seconds."

That makes finding new sites challenging, he said, but hasn't ended the "green rush."

"Everyone is on the street trying to relocate their dispensaries. And there's a new group who still wants to get into the game."

Jonathan Martin: 206-464-2605 or jmartin@seattletimes.com. On Twitter @jmartin206.

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