A HAZY FUTURE – PART 3
Part 3: The Money

 
Thursday, June 16, 2011

The profit motive is a compelling argument for increasing access to medical marijuana in California, particularly as the Golden State slashes services in its struggle to sustain solvency. Proponents of Proposition 19, last year’s unsuccessful ballot measure that would have legalized recreational marijuana, boasted of the revenue their initiative could bring a cash-strapped state: a cool $1.4 billion. (That estimate was issued by the state Board of Equalization in 2009 but later retracted.) 

Some jurisdictions, seeing dollar signs and an opportunity to further regulate medicinal Mary Jane, have taken taxation of dispensaries and collectives into their own hands. Oakland voters overwhelmingly passed a taxation initiative, Measure F, in 2009, and the city of Los Angeles passed Measure M in March, expecting to raise between $3 million and $5 million a year in revenue. The San Jose City Council also passed a 7 percent tax on gross receipts of medical marijuana businesses in March, and recently reported raising $290,000 from 73 pot clubs for the city’s coffers in the first month of taxation. That’s great news for a city facing a $115 million budget deficit, but like all things cannabis in California, it gets complicated.

While San Jose is making mad money on medical marijuana, it’s also working to eliminate all but 10 of its dispensaries under new proposed zoning regulations. According to a May 27 memo from Mayor Chuck Reed’s office, $1.2 million of the $2.5 million projected marijuana business tax revenue in fiscal year 2011-2012 will be used for city management and police positions assigned to San Jose’s new Medical Marijuana Regulatory Program, which is charged with shutting down the pot clubs that don’t make the top 10 and collecting taxes from non-compliant facilities. 

In essence, nearly half of the money being raised through the sale of marijuana will go towards shutting down the places that sell it.

City Councilman Pierluigi Oliverio estimates the new tax will net San Jose $3.4 million per year if taxation stays at current levels, but that’ll be a bit tricky if nearly 90 percent of the city’s pot clubs are no longer allowed to operate – unless, of course, the remaining clubs expand enormously. There’s also the fact that even though the city’s collecting taxes from dispensaries and collectives, it considers them illegal under city code.

But that’s not out of the ordinary, according to city spokesperson Michelle McGurk.

“All businesses in San Jose are required to pay business taxes, regardless of the legality of said business or its location,” says McGurk. The Internal Revenue Service even has a place on its 1040 forms for businesses to list “Income from illegal activities, such as money from dealing illegal drugs” – including marijuana.

The time allotted by the City Manager’s office for dispensary enforcement is staggering: “One thousand police overtime hours for enforcement and/or investigation work; regional coordination with other public agencies; state coordination with the Attorney General’s Office and/or Department of Justice; supplies, training, public noticing, media purchases, community and stakeholder outreach; and unanticipated/unbudgeted costs associated with the unknown outcomes of beginning the process of closing down non-registered Medical Marijuana establishments and implementing the Medical Marijuana Regulatory Program.” 

That’s not counting the 30 hours of city staff time for each application from a dispensary seeking to be one of the chosen few allowed to operate legally within city limits. All told, San Jose’s allocating 12.7 full-time equivalent staff positions to the effort at a time when hundreds of public safety positions are being axed. 

~ ~ ~

Santa Cruz County is where I go to put my newly minted medical marijuana card to the test. Despite the vote last fall by Santa Cruz County Supervisors to place a moratorium on new dispensaries, there are 12 of them, opened pre-vote, that continue to operate. After a weedmaps.com perusal of dispensaries and their exclamatory menus (“SUPER SKUNK!” “PEANUT BLUNTER CHUNK!”), I set my GPS to 1001 41st Ave. in Santa Cruz, the location of Herbal Cruz, Inc. Medical Marijuana Collective.

As at Compassionate Health Solutions, my first interaction involves a clipboard and several sheets of paper. This set is simpler, though; the basics – name, date of birth, address – and my patient ID number, along with my recommending doctor’s name.

With the push of a button, the door unlocks, and I’m escorted into a weed wonderland.

Three glass cases display an impressive variety of marijuana, from colorfully named indica and sativa strains (“Blueberry Kush,” “Silver Haze”) in circular containers to THC-laced tinctures, topical creams and edibles. The latter case contains brownies, cheesecake, white chocolate macadamia nut cookies, candy bars and even ice cream. 

General Manager Rich Couch and “budtender” Josh Voda, clad in matching black polo shirts with embroidered Herbal Cruz logos, both assure me that their prices are some of the lowest in town: $45 for an eighth, $13 for a four-dose cookie. That’s one reason the seven-month-old business has rapidly amassed more than 1,200 active members. But are all of them legitimate patients?

“I’d say it’s about half and half,” Voda says. “They all have the [state] card, and some truly do have life-threatening illnesses, but do all of them really need it? Probably not.”

Not that it matters, since they only serve patients with the required legal verification.

“We’ve never had any trouble from the police, but there are definitely other places nearby that have been raided,” Couch says. “I know law enforcement’s been doing ‘inspections’ in the past few months.”

Just last week, a trifecta of local, state and federal agencies descended with search warrants on five medical marijuana dispensaries in Fresno County in the culmination of “Operation Full Compliance.” The six-month investigation was spurred by complaints from people residing near the dispensaries of rising crime and increased traffic. Local officials claimed they had good reason to believe that the dispensaries were making a profit, and were thus in violation of state and federal law. 

It’s part of a growing trend nationwide. In recent months, the U.S. Attorney’s Office has been sending threatening letters to the governors of the 16 states where medical marijuana is legal. From Rhode Island to Arizona, state health departments are hearing from the U.S. Attorney’s office that their planned collectives or dispensaries could face federal fines, raids or even criminal charges if they open.

The U.S. government’s hard-line policies on marijuana can clash with California’s more lenient laws – and, in some cases, override them. For California medical marijuana patients arrested by federal Drug Enforcement Agency officials, local and state laws no longer apply. The consequences of a DEA investigation can be costly and, in some cases, life-destroying.

“It changed everything,” says Geoffrey Schafer of the 2001 DEA raid on his El Dorado County home and subsequent arrest of his parents, Dr. Mollie Fry and Dale Schafer. Fry, a physician and breast cancer survivor, and her husband, an attorney, had a medical practice and grow operation that fully complied with state law, but they were convicted – and denied a medical marijuana defense. The government gave them the mandatory minimum 5-year sentence in 2007 for manufacturing and intending to distribute marijuana.

The couple had hoped the election of Barack Obama as president in November 2008 would represent a cultural sea change. Instead, the Department of Justice mounted an aggressive fight against Fry and Schafer’s appeal of their sentence, which was upheld in November 2010.

They surrendered to authorities on May 2.

“It’s tragic that the federal government finds it necessary to incarcerate two patients that they will have to medically care for, and ruin their family for strictly political reasons,” says Kris Hermes, a spokesperson for the marijuana advocacy group Americans for Safe Access. “The investigation, enforcement action, prosecution and incarceration causes U.S. taxpayers millions of dollars. It’s totally senseless.” 

The Global Commission on Drug Policy, a panel of world leaders including past U.N. chief Kofi Annan and former Colombian president Cesar Gaviria, concurs. The body released a report June 2 declaring that the global war on drugs has failed, and recommended that governments experiment “with models of legal regulation of drugs to undermine the power of organized crime and safeguard the health and security of their citizens. This recommendation applies especially to cannabis.” 

Geoffrey Schafer hopes his country heeds this advice, so more peoples’ lives aren’t turned upside down.

“This legal battle has left my family destitute,” says Schafer, who was 14 at the time of the raid on his parents’ operation. “We’re in so much debt from legal fees, and we’re torn apart.”

Fry is currently in the Dublin Federal Prison in Alameda County, while Dale Schafer is in Taft Federal Prison outside of Bakersfield. Their son resents the disconnect between state and federal laws that holds his family hostage.

“On the ground level at [California’s northern district] federal courthouse, you have people standing outside using marijuana,” he says. “But you go up to the 16th floor, and it’s a whole different world.”

~ ~ ~

Monterey’s City Council was supposed to hear from the Planning Commission Tuesday on an ordinance that would regulate medical marijuana dispensaries, but that discussion has been postponed until July, according to city staff. The county’s pro – and anti-pot camps will be watching closely to see if they rule in favor of greater access or ban dispensaries outright, as numerous nearby cities have done.

At a public hearing on redistricting in Salinas last month, Colleen Houston spoke out against a district that linked Monterey County, where she resides, with Santa Cruz County, for one specific reason: the prevalence of pot in the northern neighbor.

“It’s been overwhelmingly decided by cities here that pot dispensaries were not wanted within our communities,” Houston said. “We spoke up about drug abuse and crime, and safety for our children. We don’t want any association that will impact our community standards.”

But standards, much like elements of California’s medical marijuana laws, are subjective, and the other side won’t go down without a fight.

I, on the other hand, am down for the count, exhausted after hours of cannabis conversations, car rides and court cases. My beat brain struggles to navigate the murky weed waters, and I’m still flummoxed by the conflicting laws and lives I’ve encountered in the great medical marijuana debate. I feel for all the patients, police, lawyers and judges (not to mention the moms and mermaids) who are on the blurry front lines of a mind-bending battle. With so much unsettling uncertainty surrounding me, only one thing’s for sure: I need a cookie. A cannabis cookie. Good thing I’ve got that four-dose chocolate chip delight from Herbal Cruz. It’s delicious – and legal. I think.
The profit motive is a compelling argument for increasing access to medical marijuana in California, particularly as the Golden State slashes services in its struggle to sustain solvency. Proponents of Proposition 19, last year’s unsuccessful ballot measure that would have legalized recreational marijuana, boasted of the revenue their initiative could bring a cash-strapped state: a cool $1.4 billion. (That estimate was issued by the state Board of Equalization in 2009 but later retracted.) 

Some jurisdictions, seeing dollar signs and an opportunity to further regulate medicinal Mary Jane, have taken taxation of dispensaries and collectives into their own hands. Oakland voters overwhelmingly passed a taxation initiative, Measure F, in 2009, and the city of Los Angeles passed Measure M in March, expecting to raise between $3 million and $5 million a year in revenue. The San Jose City Council also passed a 7 percent tax on gross receipts of medical marijuana businesses in March, and recently reported raising $290,000 from 73 pot clubs for the city’s coffers in the first month of taxation. That’s great news for a city facing a $115 million budget deficit, but like all things cannabis in California, it gets complicated.

While San Jose is making mad money on medical marijuana, it’s also working to eliminate all but 10 of its dispensaries under new proposed zoning regulations. According to a May 27 memo from Mayor Chuck Reed’s office, $1.2 million of the $2.5 million projected marijuana business tax revenue in fiscal year 2011-2012 will be used for city management and police positions assigned to San Jose’s new Medical Marijuana Regulatory Program, which is charged with shutting down the pot clubs that don’t make the top 10 and collecting taxes from non-compliant facilities. 

In essence, nearly half of the money being raised through the sale of marijuana will go towards shutting down the places that sell it.

City Councilman Pierluigi Oliverio estimates the new tax will net San Jose $3.4 million per year if taxation stays at current levels, but that’ll be a bit tricky if nearly 90 percent of the city’s pot clubs are no longer allowed to operate – unless, of course, the remaining clubs expand enormously. There’s also the fact that even though the city’s collecting taxes from dispensaries and collectives, it considers them illegal under city code.

But that’s not out of the ordinary, according to city spokesperson Michelle McGurk.

“All businesses in San Jose are required to pay business taxes, regardless of the legality of said business or its location,” says McGurk. The Internal Revenue Service even has a place on its 1040 forms for businesses to list “Income from illegal activities, such as money from dealing illegal drugs” – including marijuana.

The time allotted by the City Manager’s office for dispensary enforcement is staggering: “One thousand police overtime hours for enforcement and/or investigation work; regional coordination with other public agencies; state coordination with the Attorney General’s Office and/or Department of Justice; supplies, training, public noticing, media purchases, community and stakeholder outreach; and unanticipated/unbudgeted costs associated with the unknown outcomes of beginning the process of closing down non-registered Medical Marijuana establishments and implementing the Medical Marijuana Regulatory Program.” 

That’s not counting the 30 hours of city staff time for each application from a dispensary seeking to be one of the chosen few allowed to operate legally within city limits. All told, San Jose’s allocating 12.7 full-time equivalent staff positions to the effort at a time when hundreds of public safety positions are being axed. 

~ ~ ~

Santa Cruz County is where I go to put my newly minted medical marijuana card to the test. Despite the vote last fall by Santa Cruz County Supervisors to place a moratorium on new dispensaries, there are 12 of them, opened pre-vote, that continue to operate. After a weedmaps.com perusal of dispensaries and their exclamatory menus (“SUPER SKUNK!” “PEANUT BLUNTER CHUNK!”), I set my GPS to 1001 41st Ave. in Santa Cruz, the location of Herbal Cruz, Inc. Medical Marijuana Collective.

As at Compassionate Health Solutions, my first interaction involves a clipboard and several sheets of paper. This set is simpler, though; the basics – name, date of birth, address – and my patient ID number, along with my recommending doctor’s name.

With the push of a button, the door unlocks, and I’m escorted into a weed wonderland.

Three glass cases display an impressive variety of marijuana, from colorfully named indica and sativa strains (“Blueberry Kush,” “Silver Haze”) in circular containers to THC-laced tinctures, topical creams and edibles. The latter case contains brownies, cheesecake, white chocolate macadamia nut cookies, candy bars and even ice cream. 

General Manager Rich Couch and “budtender” Josh Voda, clad in matching black polo shirts with embroidered Herbal Cruz logos, both assure me that their prices are some of the lowest in town: $45 for an eighth, $13 for a four-dose cookie. That’s one reason the seven-month-old business has rapidly amassed more than 1,200 active members. But are all of them legitimate patients?

“I’d say it’s about half and half,” Voda says. “They all have the [state] card, and some truly do have life-threatening illnesses, but do all of them really need it? Probably not.”

Not that it matters, since they only serve patients with the required legal verification.

“We’ve never had any trouble from the police, but there are definitely other places nearby that have been raided,” Couch says. “I know law enforcement’s been doing ‘inspections’ in the past few months.”

Just last week, a trifecta of local, state and federal agencies descended with search warrants on five medical marijuana dispensaries in Fresno County in the culmination of “Operation Full Compliance.” The six-month investigation was spurred by complaints from people residing near the dispensaries of rising crime and increased traffic. Local officials claimed they had good reason to believe that the dispensaries were making a profit, and were thus in violation of state and federal law. 

It’s part of a growing trend nationwide. In recent months, the U.S. Attorney’s Office has been sending threatening letters to the governors of the 16 states where medical marijuana is legal. From Rhode Island to Arizona, state health departments are hearing from the U.S. Attorney’s office that their planned collectives or dispensaries could face federal fines, raids or even criminal charges if they open.

The U.S. government’s hard-line policies on marijuana can clash with California’s more lenient laws – and, in some cases, override them. For California medical marijuana patients arrested by federal Drug Enforcement Agency officials, local and state laws no longer apply. The consequences of a DEA investigation can be costly and, in some cases, life-destroying.

“It changed everything,” says Geoffrey Schafer of the 2001 DEA raid on his El Dorado County home and subsequent arrest of his parents, Dr. Mollie Fry and Dale Schafer. Fry, a physician and breast cancer survivor, and her husband, an attorney, had a medical practice and grow operation that fully complied with state law, but they were convicted – and denied a medical marijuana defense. The government gave them the mandatory minimum 5-year sentence in 2007 for manufacturing and intending to distribute marijuana.

The couple had hoped the election of Barack Obama as president in November 2008 would represent a cultural sea change. Instead, the Department of Justice mounted an aggressive fight against Fry and Schafer’s appeal of their sentence, which was upheld in November 2010.

They surrendered to authorities on May 2.

“It’s tragic that the federal government finds it necessary to incarcerate two patients that they will have to medically care for, and ruin their family for strictly political reasons,” says Kris Hermes, a spokesperson for the marijuana advocacy group Americans for Safe Access. “The investigation, enforcement action, prosecution and incarceration causes U.S. taxpayers millions of dollars. It’s totally senseless.” 

The Global Commission on Drug Policy, a panel of world leaders including past U.N. chief Kofi Annan and former Colombian president Cesar Gaviria, concurs. The body released a report June 2 declaring that the global war on drugs has failed, and recommended that governments experiment “with models of legal regulation of drugs to undermine the power of organized crime and safeguard the health and security of their citizens. This recommendation applies especially to cannabis.” 

Geoffrey Schafer hopes his country heeds this advice, so more peoples’ lives aren’t turned upside down.

“This legal battle has left my family destitute,” says Schafer, who was 14 at the time of the raid on his parents’ operation. “We’re in so much debt from legal fees, and we’re torn apart.”

Fry is currently in the Dublin Federal Prison in Alameda County, while Dale Schafer is in Taft Federal Prison outside of Bakersfield. Their son resents the disconnect between state and federal laws that holds his family hostage.

“On the ground level at [California’s northern district] federal courthouse, you have people standing outside using marijuana,” he says. “But you go up to the 16th floor, and it’s a whole different world.”

~ ~ ~

Monterey’s City Council was supposed to hear from the Planning Commission Tuesday on an ordinance that would regulate medical marijuana dispensaries, but that discussion has been postponed until July, according to city staff. The county’s pro – and anti-pot camps will be watching closely to see if they rule in favor of greater access or ban dispensaries outright, as numerous nearby cities have done.

At a public hearing on redistricting in Salinas last month, Colleen Houston spoke out against a district that linked Monterey County, where she resides, with Santa Cruz County, for one specific reason: the prevalence of pot in the northern neighbor.

“It’s been overwhelmingly decided by cities here that pot dispensaries were not wanted within our communities,” Houston said. “We spoke up about drug abuse and crime, and safety for our children. We don’t want any association that will impact our community standards.”

But standards, much like elements of California’s medical marijuana laws, are subjective, and the other side won’t go down without a fight.