California Pot-Clinic Crackdown Threatens $1 Billion Industry

A U.S. Justice Department crackdown aimed at the landlords of California’s medical-marijuana dispensaries threatens an industry that, by state estimates, generates as much as $1.3 billion in annual sales.

In Los Angeles alone, there were 638 dispensaries last year before a city restriction forced many to close, according to a Rand Corp. study Sept. 21. The state health department has issued medical marijuana identification cards to almost 57,000 people since 2004, though the cards aren’t required.

About 400,000 Californians use marijuana on a daily basis, consuming as much as 1 million pounds each year, according to the Board of Equalization, the state’s tax administrator. Sales taxes amount to as much as $105 million annually, said Anita Gore, a spokeswoman.

“There are literally tens of thousands of legal jobs that have been created by the medical-marijuana industry in California,” said Dale Gieringer, who runs the California office of NORML, the National Organization for Reform of Marijuana Laws.

Lynnette Shaw, owner of Marin Alliance for Medical Marijuana, a dispensary north of San Francisco she claims is the oldest licensed in the U.S., said her landlord received a letter from federal prosecutors on Sept. 29.

“It was very ominous,” Shaw said in a telephone interview yesterday. “It informed him there was medical-marijuana dispensing on his site, and that he had 45 days to evict us, or possibly face 40 years in jail, forfeiture of the property and any money we had given him.”

Coordinated Crackdown

Lauren Horwood, a spokeswoman for U.S. Attorney Benjamin Wagner in Sacramento, said in an e-mail that her office had sent similar letters.

“We are initiating similar communications to selected property owners,” Horwood said. “We will be in a position to say more in the near future.”

The U.S. attorneys for the four federal districts in California are conducting a coordinated crackdown on medical marijuana dispensaries this week, according to a law-enforcement official who wasn’t authorized to discuss the matter publicly. The effort is limited to California, the official said.

Last year, when California voters were asked to approve a ballot measure to legalize marijuana for personal use, U.S. Attorney General Eric Holder threatened to “vigorously” prosecute possession and distribution if the referendum won.

The proposition failed even in Humboldt, Trinity and Mendocino counties in northern California, identified in a Rand report last year as the center of the state’s pot production.

First to Legalize

California was the first state to permit marijuana consumption for medical purposes when voters approved a 1996 ballot measure. Sixteen states and the District of Columbia have now legalized its use, according to NORML.

Dispensaries regularly advertise in newspapers such as L.A. Weekly. Hempcon, a trade show for the marijuana industry, is scheduled for the San Jose Convention Center in mid-November, with seminars on hydroponics and defending crops against pests.

Marijuana sales remain illegal under federal law and many dispensaries in California violate even state rules that forbid making money from distribution, according to Mark Kleiman, a professor of public policy at the University of California, Los Angeles.

“Most are private, for-profit entities,” he said in a telephone interview.

Cities including Los Angeles and Berkeley have taken steps to license and regulate dispensaries, although those efforts may be endangered by a state appeals court ruling Oct. 4.

Appellate Court Ruling

The court decided that Long Beach couldn’t proceed with a dispensary-permitting plan because cities “are preempted by federal law from doing anything that would facilitate the distribution of marijuana,” according to Michael Mais, assistant city attorney.

The City Council will discuss the ruling next week, Mais said, and could decide to appeal to the state Supreme Court. Permitting is on hold, he said, as is a similar registration effort in Los Angeles, according to Frank Mateljan, a spokesman for City Attorney Carmen Trutanich.

Kris Hermes, a spokesman for Oakland-based Americans for Safe Access, which advocates policies to make it easier for patients to get pot, said closing dispensaries may boost crime.

‘Quite Alarmed’

“We’re quite alarmed by this renewed federal effort to crack down on facilities that in most cases, are either licensed, or at the very least, complying with local and state laws,” Hermes said in a telephone interview. “You’re talking about hundreds of thousands of patients being without medication, with really nowhere to turn except the illicit market.”

Steve DeAngelo, executive director of Oakland-based Harborside Health Center, said his dispensary is the largest in the U.S., with $22 million in annual revenue, and he has no intention of going out of business.

“There’s nothing that anyone can do to stop me from providing this medicine to people who need it,” DeAngelo said in an interview. “Unless they lock me up, chain me down, and put me in a box, I will keep on doing this.”

To contact the reporters on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net; Ryan Flinn in San Francisco at rflinn@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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