Growing pains: Strict rules for legal pot businesses threaten booming industry

ARLINGTON, Wash. -- The first thing that hits you when you open the door and walk into the marijuana processing facility at Arlington's Smokey Point Productions is the overwhelming smell of weed.

And then, it's the size of the place: 75,000 square feet, with 126 full-time employees mixing, extracting, packing and rolling marijuana in every form imaginable. But it wasn't always like this. Much like the marijuana plants growing here, the family business started small.

"My brother was awarded one of the initial licenses to open The Clone Zone facility in Arlington," says Emily Lade, whose family runs the operation.

Since then, the business has grown and expanded into a family of cannabis businesses: Smokey Point, Rolling Farms and The Clone Zone.

Since recreational marijuana was legalized in Washington in 2012, the business of producing and selling pot has grown every year. The industry brings in about $320 million in tax revenue each year. But it's a booming business with very real growing pains. Arlington is home to several commercial marijuana operators who say the state is trying to shut their business down by creating a system of rules and enforcement that they say is unfair.

The State Liquor and Cannabis Control Board has ordered The Clone Zone to be shut down for making what Emily Lade calls "clerical errors."

"They were baby plants that were a few inches too tall without having their own individual tag," she explains.

Here's the problem. This facility is massive. Until a few years ago it was a steel manufacturing plant. It’s two football fields long. There are 14,000 marijuana plants growing there. But one mislabeled tag -- something that minor -- could shut the entire operation down.

Chase Neumann is a cultivation expert at Smokey Point. He points to the stem of a young plant.

"We have crews that come in with scissors and trim up the lower branches (of marijuana plants), and as you can see it’s really easy to cut a tag in half, right? We have 880 Plants in here."

LCB inspectors have dinged The Clone Zone for a total of four of these type of violations over the course of two years, but under the current rules, it's four strikes and you're out. Because the drug is federally illegal, the State Liquor and Cannabis Board says they need to take a hard line to regulate the industry to keep the drug out of the hands of children, and off the black market.

Ron Harrell heads up an eight-person compliance team, checking every tag, every plant, every package.

"125 people work here, so it’s a big job on my back and my team's back to make sure everything’s compliant, because one minor violation can shut down this whole place ... It's very scary," Harrell says.

"It's a really unfortunate situation," says State Sen. Guy Palumbo, D-Maltby, who may be The Clone Zone's last hope. He is one of many legislators who are backing a pair of bills that aim to ease the harsh penalties for minor violations, and create a system focused on compliance, rather than enforcement.

"Anytime you set up a new industry, there's going to be a lot of learning that goes on in those first couple of years. People like the Clone Zone had a few minor violations, and now they are losing their livelihood, and all the money they have invested and all the living wage jobs, and that is just wrong in my opinion," Palumbo says.

The LCB largely opposes the legislation.

"What this bill will do at the end of the day is lay on a lot of processes that will not help the system, but choke the system," says Russell Hague of the Liquor Control Board.

Smokey Point's compliance manager Ron Harrell has big concerns about the company's future.

"I have three children and I have a daughter going to U-Dub, a senior in high school looking at colleges. If I don’t have a job, I can’t provide for them so it’s a very big deal at this place got shut down. I don’t know what I would do to tell you the truth."

While testifying before the House Commerce Committee in January, the head of the Washington Cannabis Growers Association accused the LCB of operating under a "gotcha" mentality, raiding legal businesses with armed officers to search for possible violations.

She said dozens of business owners were unwilling to to go on the record in speaking out against the LCB for fear of retribution. They also argued that the LCB's inflexibility is limiting the growth of the industry in Washington, and is dissuading outside investment.

As for The Clone Zone and Smokey Point Productions, it is business as usual, at least until the end of this legislative session, hoping that lawmakers are able to change the rules.

"Try to stay positive," Cultivation expert Chase Neumann said. "Plants like it when people around them are positive. You have to keep the right mindset."