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As the recreational-pot market develops, a growing number of Seattle medical-marijuana businesses are operating in a legally gray, loosely regulated space.

What regulations do exist often are ignored because a patchwork group of agencies involved relies mostly on complaints to take notice of bad actors and doesn’t shut down businesses breaking the law.

Just 45 of 300 medical-marijuana businesses on file with the city’s Finance and Administrative Services Department paid local business and occupation taxes in 2013, according to a recent policy memo from the mayor’s office. But the regulations are so lax it isn’t clear if all 300 of those businesses made enough money to have to pay taxes, or if they even exist.

Some medical-marijuana businesses are operating without proper permits, according to city records.

Much of what happens next in medical marijuana depends on the Legislature. Last fall, the Seattle City Council passed an ordinance intending to halt new medical-marijuana businesses but allow those already operating to continue through the end of this year.

Councilmember Nick Licata, who sponsored the ordinance, said the idea at the time was to see if the state addressed medical marijuana before the city made regulations.

But state lawmakers last session failed to reconcile medical marijuana with the new recreational system, so the council extended Licata’s measure.

State Rep. Chris Hurst, D-Enumclaw, said he’s surprised Seattle is looking to Olympia to solve the problem, since the city has allowed what are supposed to be run as nonprofit collectives to essentially function as retail stores. Most dispensaries today are shams — for-profit, black-market operations, he said.

“You have (City Attorney) Pete Holmes saying the Legislature needs to do something about it, when Pete Holmes just needs to enforce the law,” he said.

Rep. Jeff Holy, R-Cheney, said he was fairly confident the Legislature would take up the issue but wasn’t sure if it would suit Seattle’s needs.

Seattle doesn’t appear to be counting on Olympia anymore.

Mayor Ed Murray’s office will present a plan this month that calls for special licensing of all marijuana businesses, said Philip Dawdy, media and policy director of the Washington Cannabis Association, and city sources.

For businesses in the recreational system, the city license will operate like a registration. For medical-marijuana businesses, the licenses will be a temporary measure until the Legislature decides the industry’s future, if it does.

Last month, the city sent marijuana businesses a letter warning enforcement could be coming.

As the recreational market ramps up, Holmes said, he expects a more vigorous approach from the city.

“There will be, in the near future, some really good examples made,” Holmes said. “If you get on our radar because you’re a bad neighbor, because you failed to get a business license, you failed to pay taxes, you failed to get a state license — we are going to come knocking.”

“There’s no oversight”

The smell of marijuana wafted from a building at the foot of the new South Park Bridge and was pungent, neighbors said, from blocks away.

The bridge opening after more than three years of construction had been an economic boost. And with its windows and doors boarded up, the medical-marijuana grow operation was blight in a neighborhood on the upswing, they said.

John Johnson, who owns the building next door, complained to the state Liquor Control Board, the Seattle Fire Department and a police contact last spring.

The fire marshal performed a routine inspection in June and referred the case to the city’s Department of Planning and Development. Johnson said a police officer was sympathetic but said he didn’t have enough information to launch an investigation.

Johnson grew increasingly frustrated and didn’t know where to turn.

Medical-marijuana growers and retailers are required to have a business license and comply with the city’s building and zoning laws. But there is not a special license to operate a dispensary or medical grow, something city officials and industry leaders say has allowed these businesses to proliferate.

“There’s next to no barrier of entry to open a store. There’s even less of a barrier to grow cannabis,” said Alex Cooley, an entrepreneur in the industry. Plus, Cooley said, “there’s no oversight.”

City rules don’t require medical-marijuana businesses be treated any differently than a Walgreens, for example.

“You’re probably not going to come to our attention unless your neighbors complain about you,” Holmes said.

The Seattle Police Department handles criminal issues, the Department of Finance and Administrative Services (FAS) handles business license and tax issues, and the Planning Department deals with building permits and zoning issues.

These agencies face significant hurdles. Although FAS is tracking marijuana businesses for tax purposes, it’s not sure how many exist.

Julie Moore, a spokeswoman for FAS, said that because the business-license system is based on federal codes that don’t recognize marijuana, the businesses “sort of self-identify” with pot-themed business names or descriptions. Many marijuana businesses identify as “health and personal care stores.”

Another problem: Businesses can simply deny the Planning Department’s code-compliance inspectors entry. That makes investigating things like how many plants are being grown difficult.

“We can only evaluate what we can see,” said Planning Department spokesman Bryan Stevens.

When the city agencies do find problems, they can take months to resolve. Both agencies seek compliance, rather than shutting businesses down.

Businesses delinquent for taxes accumulate fines and interest. If they don’t pay, debts could be sent to collections. To date, FAS has not revoked any marijuana-related businesses’ licenses.

The Planning Department levies violations, which can lead to fines. If business owners don’t respond, cases are sent to the City Attorney’s Office for a potential lawsuit. According to the city memo, that takes anywhere from three to six months and businesses can remain open in the meantime.

The city attorney usually tries to settle. Businesses fix the problem and pay a fine.

Although the city could seek an injunction to close medical-marijuana businesses, it has never done so, according to the memo.

Slow in South Park

For Johnson, in South Park, the process has played out slowly.

The Department of Planning and Development had already visited in March, determined the company, Washington Medical, didn’t have the proper permit to grow marijuana and issued a violation, according to the agency’s records.

Washington Medical failed several more inspections and never let the Planning Department inside, Stevens said, but eventually it did apply for a permit to become an urban farm. Meanwhile, the City Attorney’s Office filed suit against the grower and its landlord in September, asking them to comply with the land-use code and pay up to $500 a day for violations dating to February.

It’s one of five suits against marijuana businesses the city is pursuing.

At least 18 South Park neighbors, including Johnson, sent the Planning Department letters opposing the permit.

Shane Reece, who runs Washington Medical, said that he didn’t know he had to get the permits, and that he’s frustrated some of his neighbors would complain to the city instead of to him. He said he’s working through the permitting process but believes Johnson won’t be happy until he’s driven from South Park.

“What can I do but go away and close my business because they don’t want me here?”

As for Johnson’s concerns about his building’s appearance?

“You do see this neighborhood — there’s tons of rundown buildings, homeless people and tractor trailers,” he said.

Warning letter

The letter that city officials sent to about 330 marijuana businesses last month warned that more enforcement could be coming.

Licata said the city chose a letter instead of raiding these businesses because it’s “the Seattle way” to start with a polite knock on the door. But he said the message was clear: “You’re on notice.”

The letter speaks to businesses that opened after the council enacted its moratorium on new medical businesses and have more than 45 plants or 72 ounces of usable pot.

To Licata’s frustration, the city has continued issuing business licenses to those operators.

According to the policy memo, “FAS does not believe it has the authority to either reject an application or pull a license for regulatory purposes.”

One business that began after the 2013 deadline, the Amsterdam Exchange Cannabis Farmer’s Market, shut down voluntarily after the Planning Department sent its case to the city attorney for legal action.

Last weekend, the Seattle Police Department also raided two houses in West Seattle. SPD spokesman Patrick Michaud said some pot was confiscated, but the growers were allowed to keep the amount that is legal under the medical-marijuana law. Michaud said SPD hadn’t raided a marijuana operation since June.

“There’s a changing environment with the city,” said Dawdy, of the Washington Cannabis Association. “Frankly I’ve been expecting it for quite awhile.”

“Very responsive”

While city regulations remain in limbo, Johnson has been most successful at getting his complaints addressed in South Park through the Puget Sound Clean Air Agency (PSCAA).

The Washington Clean Air Act defines odor as a pollutant, and inspector Tom Hudson found “odor at a level that was considered a nuisance.” He issued a notice of violation to Washington Medical. Fines range from about $1,000 to $16,000.

Washington Medical’s Reece let the PSCAA inside to inspect in August, and records show the agency estimated there were about 450 plants. State law allows 45.

After the violation notice, Reece took steps to abate the odor and is going through a permit review process with the agency.

“They’ve been very responsive,” said Carole Cenci, an engineer with the agency.

Neighbors said the smell has receded and is no longer a problem.

Johnson still wants Washington Medical gone.

“This is our 12th and Pike,” he said. “The fact that they’re there is an issue. They don’t have a license to operate there.”

Soon, though, that license might exist.

Evan Bush: 206-464-2253 or ebush@seattletimes.com On Twitter @evanbush