July 8 (Bloomberg) -- When self-described serial entrepreneur Ian Christensen looks around the white-walled medical office he plans to lease in Paradise Valley, Arizona, he sees opportunity. Now all he needs is some pot.
Like hundreds of other would-be marijuana moguls, Christensen courted investors, hired attorneys, negotiated leases, cleared zoning hurdles, purchased equipment and sank tens of thousands of dollars into plans to pioneer an industry Arizona voters created by referendum in November.
Then Governor Jan Brewer, a Republican who opposed the initiative, sued the federal government and would-be dispensary operators in a case that may have implications in California and the 14 other U.S. states that have authorized medical pot. She wants a federal judge in Phoenix to decide whether the state can implement the law without its workers facing federal charges or whether U.S. law trumps the statute entirely.
“They put the dispensaries out of business before we ever started,” Christensen said last week as he toured the office.
Like other supporters, he cited the monetary boost and jobs a new industry could bring to the state, whose unemployment rate has been above 9 percent for more than two years. The Arizona Medical Marijuana Association, a defendant in Brewer’s lawsuit, estimates a medical-pot industry would generate as much as $700 million annually, according to Joe Yuhas, a spokesman.
“We want to stimulate the local economy,” said Christensen, a 34-year-old Scottsdale resident.
Brewer filed suit May 27 because she shares the concerns of other governors, including New Jersey’s Chris Christie and Washington’s Christine Gregoire, that government employees might face federal prosecution for carrying out state law, said her spokesman, Matthew Benson.
Christie, a Republican, said last month he would delay New Jersey’s medical-marijuana law until getting clarification from U.S. authorities. The sale and possession of pot is illegal under federal law, even for medical use.
Medical marijuana has existed in a legal gray area since California became the first state to authorize it 15 years ago, its precarious nature punctuated by occasional federal raids and prosecutions. In 2009, President Barack Obama’s Justice Department outlined its position in a memo to U.S. attorneys that said federal resources shouldn’t be spent prosecuting people complying with state medical-marijuana laws.
Risk of Prosecution
Since then, more states and localities have moved to regulate the medical-marijuana industry and license those who cultivate or sell it, raising questions about how the federal government would treat commercial enterprises legal under state law.
In April, Gregoire, a Democrat, sought federal guidance when trying to decide whether to sign a bill to create a licensing system in Washington, which legalized medical marijuana in 1998. Washington’s U.S. attorneys responded that anyone who ran or facilitated marijuana dispensaries or cultivation sites risked prosecution -- including state employees. Gregoire vetoed the measure.
Similar letters from U.S. attorneys to officials in other states followed, including from Arizona’s U.S. attorney, Dennis K. Burke. His May 2 letter to health officials didn’t mention government employees. Burke has “no intention to investigate, target or prosecute state employees,” he said in an interview last week.
Brewer and state Attorney General Tom Horne filed their lawsuit five days before licensing of dispensaries was set to start. Arizonans approved the pot referendum by 50.1 percent to 49.9 percent, a margin of fewer than 5,000 votes.
Two weeks after Brewer filed her suit, Christie, who had requested guidance from the federal government in April, cited the same reason when he announced he would continue to delay implementation of New Jersey’s medical-marijuana law that was to start this month.
A Justice Department memo sent June 29 to federal prosecutors was aimed at clarifying the situation. Those who grow, sell or distribute marijuana or “facilitate” those activities -- even if they are legal under state law -- risk prosecution, wrote Deputy U.S. Attorney General James M. Cole.
Brewer, 66, criticized the memo in a statement for offering only “continued confusion and doublespeak.” She and Horne said it makes Arizona’s case even more important.
“They knew we were concerned about government employees, and they chose not to give us reassurance,” Horne said in a telephone interview July 1.
New Jersey officials are reviewing the Justice Department memo and haven’t decided how to proceed, said Paul Loriquet, a spokesman for Attorney General Paula Dow.
The American Civil Liberties Union, which is defending the Arizona Medical Marijuana Association in the case, asked the court yesterday to dismiss Brewer’s lawsuit. Among other arguments, the ACLU said states shouldn’t be able to challenge the legality of their own laws in federal court.
“It will be a significant ruling that will affect how medical-marijuana laws are implemented and how they may or may not be challenged in the future,” said Scott Michelman, an ACLU staff attorney.
Brewer’s suit left the state that was about to have one of the most tightly regulated medical-marijuana systems in the country facing a patchwork future of home-growing, caregivers and “clubs” instead. Would-be dispensary owners have sued in state court to force her to move forward with licensing. In the meantime, they wait, give up or adapt.
Grow Your Own
Marla Richards, publisher of a marijuana trade magazine called “Clinical Cannabis Today,” said she thought a plan to open at least five dispensaries was a safe retirement investment. Now Richards, 46, of Scottsdale, Arizona, said she worries about wasting the $85,000 in savings she’s spent and losing real-estate agreements she’s secured.
Tripp Keber, 43, of Colorado-based Dixie Elixirs and Edibles, has scrapped plans to open a marijuana food factory in Phoenix that would have had more than a dozen full-time employees to start. He said he put many hours and tens of thousands of dollars into researching the Arizona market.
Ingrid Joiya, 55, whose company invested more than a quarter-million dollars to develop vending-machine technology for a chain of cashless dispensaries, is looking for a loophole.
The North Phoenix resident said she decided to invest in Arizona’s dispensary system because the state did it right: Dispensaries were to be regulated, capped at 125 and subject to strict local zoning rules. Residents couldn’t grow their own pot if they lived within 25 miles of a dispensary.
Without dispensaries, patients and designated caregivers can grow their own pot without being subject to the same regulations. More than 6,500 patients have received medical-marijuana cards since the program started in April, according to Health Department statistics, with 75 percent indicating they planned to grow their own.
Unregulated caregiver clubs are opening to fill the void created by the Brewer suit. Caregivers, who are designated by patients to grow pot for them, are allowed to cultivate as many as 12 plants per patient, with a limit of five patients.
Joiya is working on a new plan to open her pot shops with marijuana from caregivers.
“We financially committed to these things, to put money in an economy in a state that desperately needs it,” she said. “I think it is a nightmare, an absolute nightmare and a travesty. Voters voted on this, and the governor is trying to stop it under a ruse.”
The case is Arizona v. United States of America, 11-01072, U.S. District Court, District of Arizona (Phoenix).
To contact the reporter on this story: Amanda J. Crawford in Phoenix at acrawford24@bloomberg.
To contact the editor responsible for this story: Mark Tannenbaum at firstname.lastname@example.org.