New rule stands to squeeze medical-pot providers out of retail space

Brad Jones / Face The State

Eva and Mitch Woolhiser invested $50,000 for improvements to their dispensary; the state may force the couple to move the business.

The Colorado Housing and Finance Authority has put medical marijuana dispensaries on its list of so-called "sin businesses," meaning the pot providers cannot lease space in more than 500 commercial properties CHFA is currently financing across the state.

The agency, which provides funding for affordable housing and small businesses, adopted the new rule in April, exposing yet another fissure of uncertainty and contradiction between state and federal law on the topic of medicinal pot.

Already, at least one operator has been caught in the crossfire. When Mitch Woolhiser was told he was now considered to be the owner/operator of a "sin business" and would probably have to relocate, he couldn't believe his ears. In February the former software developer and his wife Eva, a dental hygienist, had signed a three-year lease on the spiffy storefront in the town of Edgewater, just west of Denver, and opened the Northern Lights medical marijuana dispensary. Two months later, his landlord Charles Woolley of St. Charles Town Company broke the news that CFHA had sent notice that the dispensary was in violation of the property's mortgage agreement.

Woolley, who has redeveloped numerous urban properties in Denver, was able to finance the Edgewater project in 2007 through $8.7 million in New Market Tax Credits offered by the federal government. Since the funds were administered through CHFA, however, it's up to officials from the quasi-public agency to enforce rules preventing certain types of businesses from setting up shop in the space, namely "sin businesses" such as liquor stores, massage parlors, gambling outfits and tanning salons.

CHFA

CHFA executive director Cris White

According to CHFA Executive Director Cris White, the designation comes from Small Business Administration commercial lending guidelines. When CHFA began issuing and facilitating loans for small businesses in the ‘80s, the organization decided to adopt the "sin business" policy as their own. "The primary sources of capital for us today for small business lending are related to federal funds," White says. "With respect to these sources of capital, we certainly can't take the risk of doing something that isn't in conformance with federal government regulations."

Especially if those federal regulations don't recognize medical marijuana as legal, even if Colorado law does. At an April 22 meeting of the CFHA board, White referenced the situation with Northern Lights and cited concern that properties housing medical marijuana businesses could be impounded by the federal government. Unwilling to add such risk to CHFA's nearly $300 million commercial loan portfolio, the board voted unanimously to prohibit authority-financed properties from being leased to medical marijuana businesses, as they do liquor stores and other “sin businesses.”

Ironically, one of the CHFA board members to support the new policy was Roxy Huber, Executive Director of the Colorado Department of Revenue, who was appointed to CHFA's board by Gov. Bill Ritter. The Department of Revenue is the agency in charge of adopting and overseeing new laws regulating the legal sale of medical marijuana in the state. Given that CHFA was created by the Colorado Legislature, does White see any problems with deferring to the feds on this issue?

Brad Jones / Face The State

CHFA's policy change is not a commentary on Colorado's medical marijuana law, White says. "It's a constitutional amendment, we know what it legalizes, we know voters approved it, and we know it's use. That's perfectly legitimate," he responds. But he adds that there is no grey area in federal law, "and because we are held to that, we do not want to risk the flow of capital into the state." However, CHFA could possibly reconsider their blanket prohibition once the turmoil of implementing Colorado’s new medical marijuana laws are ironed out by regulators, he offers. “The regulatory environment is just so in flux right now that we don’t understand the market and don’t know how to underwrite the risk.”

Yet, in the meantime, it’s caregivers like Woolhiser who are getting squeezed out. He estimates he and his wife spent $50,000 to build out the retail space with a secure foyer, a waiting room and other amenities that will be lost when he is forced to move. He says they've been given until August to relocate somewhere else, though he doesn't know where that will be. Most metro area cities, including Denver, have enacted moratoriums on granting new medical marijuana business licenses.

One local attorney who represents many in the local medical marijuana business thinks that CFHA could be risking a lawsuit with its new policy. Bob Hoban cites a recent district court ruling which held that the medical marijuana caregivers have the right to do business in the state. "Now if the government is in fact standing in the way of these individuals from delivering on that right, there's absolutely a cause of action in there that's constitutional in nature," he says.

As for Woolhiser, he says he is not interested in taking the state lending group to court. “I don’t want it to sound like I’m bashing CHFA, because I’m not,” says the dispensary owner, who earned a master’s degree in business last year. “But I see myself as a small business owner like any other small business. We don’t see many options going forward.”