DENVER (Reuters) - At a Denver dispensary for medical marijuana, state inspector Mark Brown makes his usual checks, verifying that employees wear name-tag licenses and the video surveillance system works.
The store is a laid-back place with a popcorn machine, a "Reefer Madness" movie poster and plenty of pot, sold both mixed into candy and as buds.
Brown mingles with the staff, among them a tattooed man rolling joints in a side room. Fellow inspector Paul Schmidt, formerly an undercover agent with the Drug Enforcement Administration, checks on the facility's marijuana-growing operation.
A small group of customers, including an elderly woman with purple hair and some more conservatively dressed young adults, are choosing from a dizzying array of pot products. There are marijuana strains with names such as "Bubba Kush" and "Buddha's Sister" as well as pot-infused brownie mix and gum balls.
"What you see here is an industry coming from underground above ground," Schmidt said of Colorado's move to regulated marijuana cultivation and dispensaries.
All marijuana use is illegal under U.S. federal law, but 16 states and the District of Columbia have measures allowing people with cancer, AIDS and even back pain to use it to alleviate their symptoms. They operate in a gray area of inconsistent enforcement of federal laws.
Among the states with medical marijuana, Colorado stands out because it has chosen to develop a comprehensive system to regulate marijuana, unlike states that have taken a hands-off approach or left it to local authorities.
The state is also at the forefront of a push by pot advocates to legalize recreational use of the drug. If that happens, its experiment with regulated marijuana dispensaries could be vastly expanded to cover the whole industry in the state, although that would be much more complex and pose many challenges.
Moreover, Colorado's regulatory regime has been held up as a model for how a legal marijuana industry could be managed in other states, as public support for legalizing cannabis for adults 21 and over grows.
Voters in Colorado and Washington state will be asked to decide on legalization in November, in polls that come even as the federal government has clamped down on medical cannabis in several mostly Western states, raiding dispensaries and growing operations and threatening landlords with prosecution. Colorado voters defeated legalization in 2006.
INSPECTORS WITH GUNS, BADGES
In Colorado, the 2-year-old Medical Marijuana Enforcement Division, headed by the state's former director of liquor enforcement, Laura Harris, has nearly 20 employees including inspectors who carry badges and guns. Their job is to prevent spillover of the drug to or from the black market.
The Colorado marijuana regulator is developing a first-in-the-nation system, using tags and scanners, to track each medical marijuana plant from the grow house to consumer.
In some states that allow medical marijuana, state governments have left it up to local authorities to set policy on marijuana dispensaries, so there is a patchwork of rules.
In others, there are no dispensaries and instead doctors are writing recommendations and patients are growing their own pot or getting it from their caregivers, with state or local officials having little or no involvement.
Colorado voters approved medical pot in 2000, and a full-fledged dispensary system arrived in 2009, officials said. There are now about 600 medical cannabis dispensaries serving over 80,000 patients, and the industry generates $5 million a year in sales tax for the state.
Colorado offers "a clear example of how marijuana could be regulated like alcohol. These state agencies and state employees have an expertise in how to regulate the cultivation and sale of marijuana," said Tamar Todd, a staff attorney with the Drug Policy Alliance, which favors legalization.
A Gallup poll last year showed a record 50 percent of Americans backed legalizing pot. A Colorado survey by Public Policy Polling in December found 49 percent of respondents thought pot should be legal and 40 percent illegal, with about 10 percent undecided.
No state has legalized recreational marijuana so far, and the federal government shows no tendency to move that way. In South America this past weekend, President Barack Obama reaffirmed his opposition to legalizing drugs, despite pressure from some Latin American leaders to discuss the issue as a way of combating the drug trade.
In Colorado, legalization is far from certain. But marijuana foes in Colorado concede they face a tougher fight this time in a state that could use the added tax dollars.
The measure would legalize possession of up to an ounce of marijuana or six plants for cultivation for adults. It would also set up a framework for regulated sales and taxes on pot.
"I sense there's a little bit of a backlash about medical marijuana, but I also sense it could probably be overcome with the millions and millions of dollars that I think the pro-legalization forces will spend," said Colorado Attorney General John Suthers, a vocal opponent of the measure.
Billionaires George Soros and Peter Lewis have been among the top financial backers of cannabis legalization drives nationwide, and public records show that Lewis last year gave $875,000 to a group that ran Colorado television ads in favor of cannabis taxation and regulation.
"I deeply believe that we'll have a better country and a better world if marijuana is treated more or less like alcohol," Lewis wrote last year in an opinion piece in Forbes magazine.
RISKS FOR STATE
Regulating marijuana could also carry risks for the state, which already walks a fine line by licensing cannabis shops. U.S. attorneys have threatened legal action against states over plans to license medical cannabis dispensaries in Washington state and Arizona.
"If the objective is to set an example and they need to come over and charge somebody and take me away in handcuffs, then I guess I'll be the example that they need to make," Harris said. "I don't foresee that happening though."
John Walsh, the U.S. attorney for Colorado, said that his office was focusing on large-scale drug trafficking not on the state or its workers.
But his staff has sent letters to nearly 50 medical pot shops located near Colorado schools this year, telling them to close. Federal prosecutors have sent similar letters to California dispensaries, and in Washington state federal authorities raided over a dozen pot shops last November.
Christian Thurstone, a physician with an adolescent drug treatment program at Denver Health, is critical of the regulatory system, saying the number of teens with marijuana problems admitted to his program tripled since 2009.
He complained dispensaries were subtly advertising to teens, pointing to an image from a print ad with slanted pink font reminiscent of a video game and a sunglass-wearing cloud icon.
Schools also are reporting more marijuana use, Suthers said, with drug-related school suspensions and expulsions rising to 5,417 in the last school year, from 3,736 two years before.
Suthers said teens were getting marijuana second-hand from the mostly male and middle-aged base of medical pot patients.
"My biggest nightmare is that (legalization) would continue the trend that we are seeing where we are so lowering the perception of risk by young people ... associated with marijuana that our use rate among teenagers would skyrocket," he said.
(Editing by Cynthia Johnston and Cynthia Osterman)