Washington Rules Keep 'Big Marijuana' Small, For Now

To become the Starbucks of marijuana: That’s an alluring goal for the new entrants in Washington’s legal pot business.

So far, state regulations have kept these businesses small. But even now, some marijuana businesses are ramping up to grow bigger and cross state lines.It was about a year and a half ago that former Microsoft manager Jamen Shively announced, yes, he was “big marijuana.”

“We are moving forward with our plans to build a national and eventually international network of cannabis businesses,” he told a packed press conference.

Speaking in downtown Seattle with former Mexican president Vicente Fox at his side, Shively said he was founding a new company named for his ancestor, Diego Pellicer. Its stores and brands would be found throughout Washington and elsewhere.

But state regulations forced a change in plans. The Washington State Liquor Control Board limited retail ownership to a maximum of three stores statewide. It also banned investors from outside Washington state.

That excluded some of the company’s founding members, according to the company’s current CEO Peter Norris. “So what happened is Diego split into two different companies,” Norris said.

The outside investors formed a real estate company, Diego Pellicer Worldwide, to lease property to marijuana growers and retailers. That company does not touch the federally illegal production of marijuana.

Meanwhile, Norris runs the marijuana-related business, Diego Pellicer Washington. He plans to open a flagship retail store near Seattle’s sports stadiums early next year.

“Our model, if you will, would be to look at successful companies that have been in the liquor and spirits industry, the cigar type of look.” Norris wants to create a high-end shop with products like infused chocolates. His primary target will be newcomers willing to pay for what he calls “premium marijuana.”

Another aspiring marijuana businessman is looking for help from actor Tommy Chong as he builds his retail network. Pete O’Neil’s marijuana business is called C&C. He plans to operate both retail and medical marijuana locations.

“C&C’s goal is to become sort of the Starbucks of marijuana, big picture, down the road,” he said.

O’Neil has had to overcome numerous regulatory hurdles as he seeks to get his company off the ground. He first leased three locations for marijuana stores in different cities in Washington. None of them won a license in the state lottery. So he made deals to acquire stores that did win the lottery.

His ongoing challenge is to raise enough money to get the three stores going. As a newcomer, his investor network in Washington is limited. “We can only get that capital from Washington state residents. So that’s been a little bit challenging,” he said. “It’s kind of forced me to go out and make new friends constantly.”

O’Neil hopes to open the three C&C retail stores by the end of this year. He also wanted to keep his Seattle location, since it complies with I-502, in hopes of opening a future store there. In the meantime, he opened it as a medical dispensary, but recently received a warning letter from the city of Seattle that he may have to close.

The name C&C is a tribute to the comedy duo Cheech & Chong. The stores carry a Tommy Chong-endorsed brand of marijuana, which O’Neil hopes to eventually sell nationwide.

“That’s what we’re building towards in cannabis – that there will be the creation of dependable brands that people can count on. I think Shively was the first to identify that with his Diego Pellicer,” O’Neil said.

As the new marijuana businesses jockey for position, there’s already the familiar tension over authenticity versus corporate guys in suits. Tommy Chong visited Seattle a few months ago to speak with investors and customers. He criticized Diego Pellicer for borrowing a cigar-store aesthetic that is counter to marijuana culture.

“My credibility is through the roof as far as cannabis goes,” Chong said, “because I also paid the price, I did nine months in jail because of my pot beliefs.” Chong served time in federal prison for making drug paraphernalia. Now he’s endorsing marijuana brands though companies like C&C.

Seattle attorney Robert McVay represents marijuana business owners and others in the industry. He says the states are providing a fascinating laboratory for marijuana legalization. Some allow outside investors while Washington does not. But he says those outside investors are still hoping to get a piece of Washington’s pot business.

“A lot of these companies are trying to have options to potentially buy entire businesses or buy equity stakes in businesses once the Liquor Control Board opens up its rules,” McVay said. “Everybody assumes that over time things are going to become a little more relaxed on the regulatory side.”

For his part, Diego Pellicer’s Peter Norris said, “I’d love to see some changes but you have to be a little pragmatic and wait to see how some of this is going to unfold.”

Norris said everyone has been surprised at how slow progress has been to get marijuana production and retail up and running under I-502. He called addressing unregulated medical marijuana the “next hot-button issue” for the state.

McVay said “big marijuana” may ultimately arise in response to consumer demand. But states are requiring stores to sell pot that is packaged, sealed and labeled. If customers can’t see it or smell it first, McVay said they’ll want brands they can trust.

“That’s where branding becomes more important,” he said. “Because if a brand can establish some quality and consistency, people are going to turn to it more.”

And there are fledgling signs of national names and brands taking shape. McVay cites cross-state licensing agreements to allow marijuana edibles to be sold in multiple states.

Pete O’Neil says he’s looking to open multiple stores in Oregon, where marijuana legalization was just approved by voters. O’Neil says unlike Washington, Oregon does allow outside investors. And Oregon taxes on pot are expected to be lower than in Washington, so O’Neil could find himself selling to some Washington pot tourists as well.