Medical Marijuana: Will Colorado's "green rush" last?

The following is a script from "Rocky Mountain High" which aired on Oct. 21, 2012. Steve Kroft is the correspondent. L. Franklin Devine, producer.

When people go to the polls two weeks from now they won't just be voting for candidates, in some states, they'll be passing judgment on social issues. In Oregon, Washington and the Rocky Mountain state of Colorado it's the legalization of marijuana. Part of this has to do with cash-starved governments looking for new things to tax for more revenue. But much of it has to do with the growing acceptance or at least tolerance for a drug that was once considered the devil's weed and a flashpoint for cultural and generational warfare.

Seventeen states have now legalized its medical use for the treatment of things like glaucoma, the effects of chemotherapy, and chronic pain; defying federal laws that still consider marijuana more dangerous than cocaine and methamphetamine. If you want to know what legalized marijuana might look like, the place to go is Colorado, which has the most developed medical marijuana industry in the country.

In Denver, if you want to find a medical marijuana dispensary, just look for the green cross. You won't have to go far. There are 204 of them in the Mile High City -- that's roughly three times the number of Starbucks and McDonald's combined.

They come in all sizes and shapes. There is the health food store motif and '70s style head shops. There are storefronts pitching low cost weed, and boutiques offering gourmet ganja. No stems and seeds here, just walnut-sized buds freshly harvested in the cultivation room out back.

Matt Cook: When patients arrive, this is where they'll have to show their patient registry card and their driver's license to gain access to the actual marijuana center, itself.

Steve Kroft: You could smell it. (laugh)

This is all private enterprise, licensed and regulated and taxed by the state. It was enshrined in the Colorado constitution after voters approved an amendment allowing the sale of marijuana to people who can demonstrate that they may benefit from its avowed medicinal properties. Matt Cook, a former narcotics officer, wrote the law and served as the state's first director of enforcement.

Matt Cook: If you'll note, video security cameras in the system--in the ceiling.

Steve Kroft: Any reason for that?

Matt Cook: There is. We created a very transparent, regulatory scheme and wanted to ensure that what they said they were doing, they were actually doing.

No state has gone to the lengths to manage medical marijuana that Colorado has. Every licensed dispensary must grow at least 70 percent of its own product indoors so harvesting and sales can be closely monitored. This crop is worth about a quarter of million dollars.

Matt Cook: We track everything from seed to sale. And they have to account for 100 percent of it. We've got a gentleman here that has a live, if you will, software program that does all of the tracking for this commodity.

Each plant has a bar code and is registered to a specific patient. Most dispensaries will cultivate a couple of dozen different strains, some of them proprietary, like ales at a microbrewery -- engineered to have particular characteristics as our budtender, Carrie, explained.

Carrie: This is called Jack Frost, but it's a triple A: alert, awake, and aware. If you needed to medicate in the a.m. before going to work, no one would ever be able to detect that you took any medicine, just as you would any other medicines that you take. So no physical lethargy, is my point.

We should point out that those properties are anecdotal and not based on studies by the FDA or the DEA, a subject we will get to shortly. There is also no correlation between the more popular brand names and the ailments they alleviate. Dopium is a medication available at Denver Relief, owned by Ean Seeb. It's gotten high marks from critics -- yes, there are medical marijuana critics in Colorado, even competitions.

Steve Kroft: You won the Colorado Medical Marijuana Harvest Cup? Couple of years ago?

Ean Seeb: We did. In 2009. And our Biodiesel won five out of the six categories and first place. So we won the overall award. It was a sweeping victory, if you will. And then we put--

Steve Kroft: Biodiesel?

Ean Seeb: Yeah. I--

Steve Kroft: That's the name of it?

Ean Seeb: Yes, it is. And it's become--

Steve Kroft: Doesn't sound like medicine. (laugh)

Ean Seeb: There's a lot of strains out there that don't sound like medicine because this didn't used to be legal. And those strain names have not changed. You know, strains back in the '70s. You know, there was Afghani that we still have, AK-47 that came from the Hindu Kush region of Afghanistan originally.

But it's not all brand loyalty and nostalgia. There are lots of new things on the dispensary shelf, especially for non-smokers. They're called edibles, the marriage of botanical science and the culinary arts: marijuana infused cookies, candy, chocolate truffles, even olive oil. And for patients watching their waistline, there are marijuana pills that come in different strengths, just like Tylenol and Advil.

Carrie: You simply take it with a glass of water and it puts you where you need to be.

The people who have invested money in all of this are known locally as ganjapreneurs. Colorado has had a history of gold rushes and silver rushes, and some people have dubbed this the green rush, not just for the color of medical marijuana, but for the money that might eventually be made here if you are among the first to stake a claim.

Kristi Kelly was doing marketing in Washington, when she decided to invest in a medical marijuana dispensary.

Kristi Kelly: There's not a lot of opportunities in any one lifetime where you can be a part of something from such an early stage. And so, ultimately, my partners begged me to come out. And my husband and I packed up our bags and shut down our life in DC and moved out here.

Tripp Keber: The company's evolution has been fairly dynamic.

Tripp Keber is CEO of Dixie Elixirs, the leading manufacturer of cannabis-laced edibles. It supplies most of the state's 537 dispensaries from this factory, which he calls state of the art for the industry, which means small scale.

Tripp Keber: So here we have Lexi, who is one of our production specialists. She's preparing our medicated chocolate rolls, which are certainly one of our most popular edibles products.

Steve Kroft: Smells really good. It looks good.

Female voice: Thank you. (laugh)

Dixie Elixir's product line includes ice creams and medicated beverages that come in 10 different flavors.

Tripp Keber: We have a 75-milligram, 12-ounce sparkling red currant, would be the equivalent of four or five doses of medicine for a patient.

Steve Kroft: What would happen to me if I drank one of these?

Tripp Keber: You would have a very long, but mellow afternoon. (laughter)

Keber and his partners have poured a million dollars into this business, and have also pioneered edible products and capsules they say contain all of the medicinal benefits of marijuana, but without the high.

Steve Kroft: What's your business plan?

Tripp Keber: So our plan-- you know, and I'm--

Steve Kroft: Long-term and short-term.

Tripp Keber: Sure, the long-term plan for this business for Dixie Elixirs and Edibles as I've never been really shy to share is ultimately to sell it. I truly believe that whether it's Big Alcohol, Big Tobacco or Big Pharma, a company like one of those is going to look very, very closely at medical cannabis. It's about a two billion dollar market in 2012, growing to just under nine billion dollars in 2016. So you're seeing hockey stick growth. And I think companies like Dixie are well-positioned to be acquired as the industry develops.

It's a risky proposition. The industry requires a big capital investment and the medical marijuana marketplace is already saturated.

But Matt Cook, who wrote the rule book for all this and is now a consultant to the medical marijuana industry, says it's helped pull Denver out of the recession -- occupying once vacant retail and industrial space, providing thousands of jobs and new revenue for the state of Colorado.

Steve Kroft: What's the economic impact been?

Matt Cook: It's huge. There's over a million square feet of leased space in the Denver area. Look at all the electrical contractors, the HVAC contractors, a number of ancillary businesses. It's huge. Tax revenues exceeded-- I believe the last number I heard was in excess of $20 million.

But in spite of all the euphoria, there is a cloud hanging over the cannabis industry in Colorado, and it's not marijuana smoke. It's the federal Controlled Substances Act, which still lists marijuana as a Schedule One drug, every bit as dangerous as heroin, with no medical benefit. And the Justice Department is not happy with the wide-scale commercialization of Colorado cannabis. Sam Kamin is a law professor at the University of Denver, and one of the reigning experts on the subject.

Steve Kroft: In Colorado, you can grow it if you're licensed and you can sell it if you're licensed to people who have a card to buy it.

Sam Kamin: Yes, but--

Steve Kroft: And all of those people are violating federal law.

Sam Kamin: Exactly. And that's the really strange thing is that we have this, you know, sort of hundreds of dispensaries servicing as many as 100,000 people and every transaction that occurs is a federal crime and every -- all the manufacturing of the product, from the growing of it to the making of the products and everything else, all of those are serious federal crimes.

Steve Kroft: Even though the state of Colorado has passed a constitutional amendment-- amendment allowing it--

Sam Kamin: Exactly.

Steve Kroft: --sanctioning it.

Sam Kamin: Exactly. Right? The federal government sees it as a serious crime. They say, "We know that California and 16 other states, the District of Columbia -- we know you guys think it's medicine. It's not. We hear that you want to legalize it. You can't. We can't make you undo your statutes, but we can sure come in and prosecute your citizens that are violating federal law."

Steve Kroft: But they haven't.

Sam Kamin: But they haven't.

And there's a reason for that. Some might call it the triumph of the marketplace. The federal government doesn't have enough manpower to shut down the medical marijuana business in Colorado or prosecute all the purveyors and patients. And the voters don't want it.

Boulder County District attorney Stan Garnett says it's virtually impossible to impanel a jury on a marijuana case here, let alone get a conviction.

Stan Garnett: What we deal with is what prosecutors call jury nullification, where juries say, "I know what the law is, but I'm not going to follow it." This community has made it very clear that criminal enforcement of marijuana is not something they want me to spend any time on.

Steve Kroft: It is really an issue here?

Stan Garnett: It's really not an issue.

And that is more or less the position of Justice Department in Washington. Deputy Attorney General James Cole has told U.S. attorneys not to waste resources prosecuting patients or caregivers that are in clear compliance with state medical marijuana laws.

James Cole: Our focus is really on keeping it away from children. Our focus is keeping it out of the hands of organized crime. Our focus is making sure that people aren't, through marijuana dispensaries, using it as a pretext to do large-scale interstate drug dealing. These are the areas where we're really trying to focus.

Steve Kroft: So the message is, if you're licensed in the state of Colorado and you follow the law, then you should be okay.

James Cole: Each case is going to rise and fall on its own unique facts. Any of that is still in violation of the Controlled Substances Act of the federal law. We're not interested in bothering people who are sick and are using it in the recommendation of a doctor. We are concerned with people who are using it as a pretext to become large-scale drug dealers.

Steve Kroft: So it sounds like the federal government is tolerating it.

Sam Kamin: It is tolerating it. And at the same time is below the surface, trying to make it very difficult for these folks. It's doing it through banking regulations. If you talk to dispensary owners, one of the things that they will lament is, no one will do business with us.

The Justice Department has let it be known if financial institutions do business with medical marijuana centers, they could be at risk for civil or criminal prosecution under the Controlled Substances Act or federal money laundering statutes. It's made it difficult, if not impossible for dispensaries to get loans, open company bank accounts or process patients' credit cards.

Sam Kamin: It can't stay like this. Either we have to have settled expectations that this is a federal crime, the federal government's not going to tolerate it. Or the federal government is going to let states like Colorado regulate it, tax it, experiment with it. To have it exist in both worlds simultaneously is unsustainable. We can't have a multimillion dollar industry built on criminal conduct.

A federal appeals court in Washington D.C. is currently hearing a case that could remove marijuana from the list of the most dangerous drugs, and into a category that would allow it to be prescribed by doctors. On the political front, the referendums in Colorado and Washington state to legalize marijuana for recreational use are considered too close to call.