Two medical marijuana co-ops are fighting for licenses to do business in Federal Way after being rejected for the permits by the city.

A public records request revealed that Federal Way turned down just eight business licenses in the past four years, while in the same time period approved more than 4,000. Conscious Care Cooperative and Cascade Medical Center LLC were among the eight rejections.

Federal Way City Clerk Carol McNeilly ultimately signs off on business licenses. She affirmed that rejections are rare in Federal Way, adding that “we have few limitations in the (city) code.”

City code allows a license to be denied or revoked if it is determined a business is conducting illegal activity. This premise was used as basis for rejecting applications by Cascade and Conscious Care. The businesses would provide qualified medical marijuana patients with a supply of cannabis in exchange for a donation.

“The business application was denied because it is the belief of the city that Conscious Care was going to distribute marijuana, which is an illegal act under state and federal law,” assistant city attorney Peter Beckwith said Wednesday at an appeal hearing for Conscious Care.

Marijuana possession and distribution is still illegal under state and federal law. Washington’s Medical Use of Marijuana Act provides an affirmative defense for medical marijuana patients and providers.

No criminal charges have been brought against anyone involved with Conscious Care or Cascade. Conscious Care, however, continues to operate without a business license. The city sent the business a cease and desist letter, and city code makes operating a business without a license a misdemeanor, with penalties reaching $500 for each day the business remains in violation.

Cascade owner David Madrid said he submitted a business license application on Feb. 10 under instructions from his attorney. The first he heard from the city, he said, was the denial letter. His appeal hearing is scheduled for March 30.

“My attitude is, medical marijuana patients have a right to their medication,” said Madrid, who thinks the city is denying the licenses “because they don’t want (a co-op) there.”

McNeilly, when asked, denied that city leaders do not want medical marijuana co-ops — or dispensaries as they are also known — in Federal Way.

“They just want businesses that are operating legally,” she said.

Medical marijuana business denials

Of the business licenses rejected between Jan. 1, 2007, and March 15, 2011, three were in 2009, and three were in 2007. Conscious Care was denied in 2010, but notice was not received until January 2011. Cascade was rejected on Feb. 15.

The non-medical marijuana related businesses rejected were Lumber Plus, a retail store; El Cambalache, a tool seller; USA-UA Transportation, a trucking company; Mr. Tow, a towing service; K and G Enterprises, a contractor; and Taqueria El Cazador, a mobile food truck.

A total of 4,076 businesses were approved between Jan. 1, 2007, and March 15, 2011.

The medical marijuana co-ops were the only two rejected for criminal law-related issues.

McNeilly is not the only city official who holds sway over business licenses. Applications are circulated among officials in different departments — typically the planning and building department and police, who give input on whether a license should be approved.

Under city code, a business license may be rejected or revoked for a number of reasons, including:

• Using a business as cover for illegal activity

• If it becomes a nuisance or a threat to public safety

• The owner has had a criminal conviction in the 10 years prior to opening that is related to the nature of the business

Hearing process

Both Conscious Care and Cascade have appealed their business license denials. Conscious Care’s hearing was held March 23 in front of Phil Olbrechts, a hearing examiner hired by the city.

At the hearing, Beckwith interviewed McNeilly and Federal Way Police Cmdr. Stan McCall as witnesses. McNeilly testified that the city received Conscious Care’s business license application on Nov. 19 and mailed out a denial letter on Dec. 9. However, the denial was returned to the city as undeliverable — possibly due to a wrong address on the application — on Jan. 19. Police later hand delivered the letter, which McCall testified he did.

Both denial letters cite illegality of the businesses as reasons for denial. McCall testified that one of Conscious Care’s owners had outstanding warrants from other states, and that a review of the co-op’s website revealed the alleged illegality of its business model.

McCall underscored the suspicion that Conscious Care was distributing marijuana by saying that he smelled the drug when he hand delivered the letter.

“We could smell marijuana, and in my experience as a police officer (31 years), I’m familiar with what marijuana smells like,” he said. “It wasn’t burning, it was growing or a green marijuana smell.”

Conscious Care’s attorneys, Abe Ritter and Aaron Pelley, argued that the business license denial was not done in a timely manner. Pelley said that the city is presuming that the co-op is operating illegally, even though no one has been convicted of a crime.

“The important point, as it seems to be missed by the city, is that to be arrested or accused does not make one guilty of a crime,” Pelley said. “To accuse someone of a crime is simply that, an accusation. So is it illegal to possess marijuana? Yes, it is true that it can be found to be illegal to possess marijuana. It is a jury who’s going to decide who’s convicted and who is guilty of criminal conduct.”

Beckwith, when asked after the hearing if there’s evidence of a crime, said that the point is moot because no one is denying that Conscious Care distributes marijuana.

“There’s the smell, the website,” he said. “I don’t think you can dispute that they’re selling marijuana.”

“It is their biz plan,” McCall said. “It’s specifically spelled out on their website. The nature of the highs are described (on the website), not the medical effects — the high associated with the different types of marijuana they sell. That’s pretty clear. It’s spelled out in black and white.”

Brad Ecklund, a principle manager at the Federal Way Conscious Care location, said that he will operate the co-op whether he has a business license or not.

Olbrechts said he has 10 days to make a decision; however, the record of the case is open until Tuesday to receive documents from the city and the appellant.

Co-ops exist elsewhere; regulation possible

According to newspaper advertisements, medical marijuana dispensaries, co-ops and patient referral services operate in Tukwila, Burien, Spokane and Seattle. Tacoma had allowed medical marijuana businesses, but recently revoked the licenses of 19 such businesses.

When asked, neither McCall nor Beckwith could explain why other cities allow medical marijuana businesses.

“Those are good questions — we work for the city of Federal Way,” McCall said.

There is no state or federal law that explicitly speaks to medical marijuana dispensaries. When McNeilly was asked which state law outlaws dispensaries, she pointed to the state’s overarching drug law on the sale, possession and use of marijuana. The Medical Use of Marijuana Act — a medical marijuana law passed by voters in 1998 — only states that no marijuana is allowed for use or display in public.

The legality of medical marijuana businesses is a gray area to some. Olbrechts questioned both sides at the Conscious Care hearing on how a medical marijuana co-op functions under state law. The state’s medical marijuana law allows an affirmative defense for caregivers, as long as they serve only one patient. It is not clear whether that is meant as one patient in the entire world, or one patient at a time.

Proprietors say that medical marijuana co-ops and dispensaries operate much like a doctor’s office. A patient enters the business and waits in a lobby area to see a caregiver. There is a security barrier between the lobby and where the medical marijuana is kept. Only one patient at a time is allowed to see the caregiver. A donation is exchanged for the medical marijuana, though some patients can qualify for free medicine. Ecklund said that prices are kept at a rate to discourage resale — that a donation for the cannabis is more than one could get on the street.

“I understand I can’t just open up and dispense medicine,” Ecklund said. “This is a co-op. It’s a club. You have to sign codes of conduct, you have to be a medical marijuana patient. We check to make sure documentation is valid. There are all these steps that go into it.”

A new law is working its way through the Legislature that would clarify the issue. State Sen. Jeanne Kohl-Welles’ law — which has passed in the Senate — establishes a regulatory system for producing and dispensing medical marijuana; establishes arrest protections for patients, providers and dispensers; and sets up a voluntary state registry system for all involved in medical marijuana. The bill on Thursday was voted out of the state House to the floor with the recommendation of a “yes” vote.

Both Ecklund and Madrid are determined to see their businesses through. They contend that a well-run co-op is safer for medical marijuana patients.

“The city will be much better served by working with us to zone and regulate (medical marijuana businesses),” Ecklund said. “This is what we’ve been pressing them to do from the beginning, instead of ignore the elephant in the room and say, ‘no we’re not going to have this here.’”