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The nascent legal marijuana industry in Washington state is posing legal, financial and logistical issues for contractors.

For Longview, Wash.-based JH Kelly, ethical concerns exist. It was contacted by a developer to build in Longview two facilities for marijuana production, but participation on such projects would contradict the contractor’s in-house policies, said Rob Harris, vice president of business development. The company also does not want to run afoul of relationships with some of its Fortune 500 customers, including Weyerhaeuser and BP.

“Our position on it is we’re committed to a drug-free (workplace),” he said. “Just because it’s legal doesn’t mean we can work on it. How do you build a marijuana facility with a clear conscience?”

Brendan Kennedy, CEO of Seattle-based Privateer Holdings, has a different perspective. His private equity firm invests exclusively in the legal cannabis industry. A Privateer Holdings subsidiary, Arbormain, is in the process of completing a $20 million, 60,000-square-foot medical cannabis production facility in Canada.

Kennedy compared the process in Washington to going through a giant funnel. Projects fail, he said, because developers cannot obtain a license, a property or financing.

A build-out also can come with huge risks. Large warehouse projects, which require massive amounts of security, electricity and mechanical systems, are more akin to large pharmaceutical or hospital buildings than developers realize, Kennedy said.

“It’s far more complicated than people think,” he said. “People have this crazy assumption that because they know how to design a grow in a basement that they can design a large grow in an industrial warehouse. That’s just not the case.”

Meanwhile, regulations of cities and counties sometimes vary, said Jamie Howsley, a land use attorney with Jordan Ramis.

“Given some of the regulatory challenges from local governments, there is not going to be the bonanza that was expected because some local municipalities have zoned it out of existence,” he said.

The city of Vancouver came up with a map of compliant and noncompliant sites that excluded numerous areas because they were within 1,000 feet of a school, park or other area where children may congregate.

“For the grow side and the production side, that puts you into industrial zoning,” Howsley said. “For the retail side, you go into the commercial (zoning), but it’s harder to comply with the 1,000-foot rule because commercial zoning tends to be located close to those uses.”

Clark County commissioners prohibited marijuana production in unincorporated areas altogether because it does not comply with federal law, Howsley said.

Unlike Colorado, which also legalized marijuana in 2012, Washington has limited larger grow operations because they are more likely targets for federal law enforcement officials, Howsley said.

“If you are under certain plant numbers, you are less likely to get raided,” he said. “You are not likely to see big warehouses. They will more likely be a couple thousand (square) feet.”

Brian Stroh, owner of Cannaman Farms in Vancouver, started a 2,000-square-foot operation this past September.

“Property is the number one issue based on a number of factors that continually restrict the supply,” he said. “You have to find something that meets the zoning requirements.”

Alternatively, developers have to find an amenable landlord or own the land where the warehouse is built, Stroh said. So, a list of potential sites for developers can be small.

“I know of projects that would like to be under construction, but it’s not happening,” he said. “There are a lot of people with big ideas, but no money. And there are very few people with licenses.”

Financing those projects also is a big hurdle for developers and something a contractor should consider before taking on a project, said Jeremy Vermilyea, a Portland-based attorney for Schwabe, Williamson & Wyatt.

“I don’t see a huge amount of risk for putting up a building itself,” he said. “But on the financing side, most of the uncertainty is how the feds are going to look at financial transactions.”

Contractors should be wary of deals where they are paid directly or lenders are because they are subject to a higher degree of scrutiny and possibly an audit, Vermilyea said.

“A contractor would be wise to do due diligence because it raises red flags,” he said.

Traditional lenders or state-chartered banks could be safer routes, Vermilyea said. Payments made monthly by check or direct deposit also would carry less risk. He suggests that contractors contact the Washington State Liquor Control Board or an attorney to get answers.

“Even if we’re not talking about cash, the question is: Are you deriving your profit from illegal enterprises?” Vermilyea said. “Those are the questions contractors need to be asking. There is more risk than the nature of the work itself.”