suggested that federal authorities would not aggressively challenge state laws.
Almost overnight, Colorado was swamped with retail dispensaries and large-scale operations to grow the plants. The state, which didn't have an adequate regulatory or tax structure in place, soon had more weed shops than Starbucks.
By the next spring, when lawmakers scrambled to pass regulations, more than 2,000 companies had filed with the state to sell medical marijuana.
"We didn't get off to a great start because we didn't have the time or the staff to tool up," said Ron Kammerzell, the Colorado Department of Revenue's enforcement director. "We're still, in a way, playing catch-up."
At the end of 2010, the first year of regulated medical marijuana in Colorado, the state's industry had more than 1,100 businesses, including dispensaries and manufacturers of marijuana-infused products, according to state statistics.
Today, there are 675.
"A majority of the people who came in in 2009 to make a quick buck are either broke or in jail," said Norton Arbelaez, a tall, loquacious Oklahoma native who practiced medical malpractice law in Louisiana before he and a friend founded River Rock Wellness, a two-store medical marijuana operation in Denver.
"There were a lot of bozos in this business in the beginning," Arbelaez said. "For the most part, those of us still around are the ones who are doing it right."
In the roughly three years since the regulations took effect, sales have ballooned to nearly $200 million, generating $5.4 million in state sales tax in 2012.
In addition, operators have paid the state more than $10 million in application and licensing fees.
The most successful of Colorado's 479 registered retail dispensaries log annual sales greater than $3 million.
Kayvan Khalatbari's venture, Denver Relief, started with $4,000 and a half-pound of marijuana.
Wedged between a salon and an urgent care center on Denver's near south side, the 25-employee operation expects sales of $1 million to $2 million this year. It has made money from day one, Khalatbari said.
But even as the legal sale of the drug emerged from rogue growers' basements, retail owners and growers said they still operate in an environment of fear.
Because state laws run counter to a 43-year-old federal law that classifies cannabis as a Schedule 1 controlled substance, companies say they face hurdles that other businesses typically don't encounter.
Banking is difficult, insurance is hard to come by, and operators fret that their nascent enterprises could be shut down at any time by federal regulators.
Operators say most banks won't lend to enterprises that handle a product that is illegal under federal law. As a result, the vast majority of Colorado's marijuana enterprises are financed solely with their own and private investors' money.
Many lack business bank accounts and pay all of their bills _ workers' paychecks, utilities, contractor fees and mortgages _ with cash or money orders.
Another issue is taxes. On average, small businesses pay an effective tax rate of about 20 percent on net income, according to the Small Business Administration. Marijuana purveyors, by contrast, say they pay an effective tax rate of 60 to 70 percent.
That's because the federal tax code prohibits the deduction of standard business
Most Popular Stories
- SpaceX's Satellite Launch Is 'Game-Changer'
- Reid Confident Congress to Pass Immigration Bill
- Maui Visitor Killed in Shark Attack
- Donors Abandon GOP Over Gun Stance
- Mexico: 'Extremely Dangerous' Radioactive Material Stolen
- Climate Change Early Warning System Urged
- Private Sector Employment Surges by 215,000 Jobs
- Wisconsin Gov. Campaign Aide Fired Over Tweets
- Newtown 911 Tapes Being Released Today
- CEOs More Optimistic About Economy, Hiring