June 21, 2011

Feds Locking In On California’s Marijuana Industry

June 21, 2011
california vertical integration

marijuana Californiaby Michael Montgomery, California Report

With demand for medical marijuana surging around the country, some cities and states are looking to license commercial growing, including in California. Local officials say regulating the industry protects public safety and is a good source of tax revenue. But now the Obama administration is pushing back.

Last October business and city leaders gathered with medical marijuana growers and activists in a gritty industrial compound in east Oakland.

With DJs on hand, the crowd was inaugurating a super-store for pot growing supplies — and celebrating plans to open four industrial-scale medical pot farms under a new city ordinance.

Oakland Mayor Jean Quan spoke at the event, welcoming the potential tax windfall.

“When these cultivation facilities come online, we’re estimating in the first few years five to eight million dollars. Now that’s a sizeable chunk of change and it’s going to be an important part of this city’s economy,” said Quan.

Eight months later, Oakland’s plans are in tatters following stern warnings from the U.S. Justice Department that licensing of commercial marijuana growing, even for medical use, violates federal law.

At a large industrial park just off the Oakland’s 880 Freeway, developer Jeff Wilcox walks into a giant concrete and glass warehouse. It’s empty.

“This building was dubbed the football field of cannabis during our heyday. We were going to have 380 employees, and the average pay was about $52,000 [a year] per person,” said Wilcox.

Wilcox thought the facility would be safe from the feds as long as the operation closely complied with the city’s regulations and state laws. But today he sees things differently.

“The industry is scared that there’s a big push back coming against us,” said Wilcox.

obama pot

The push back isn’t just against Oakland. Recently, the Justice Department warned officials in eight other states that they would be violating federal law if they allowed commercial production of medical marijuana.

“That, in very simple terms, is what drug traffickers do. That is drug trafficking period,” said Tommy LaNier, director of the National Marijuana Initiative, a program funded by the White House Office on Drug Control Policy.

LaNier says the tripwire for the Feds’ tough new posture came last year after Californians narrowly rejected Proposition 19, a measure to legalize recreational pot use. He says officials then zeroed in on local medical marijuana schemes like Oakland’s, and decided to threaten prosecution.

“They’re not going to go after someone who’s standing on the corner or in their home using marijuana. This is going to be targeting those individuals who are facilitating production, trafficking, engaged in the distribution,” La Nier said.

LaNier says the Justice Department letters state pointedly that even local officials could face criminal charges. But Jay Rorty, an ACLU attorney, says those warnings violate previous assurances from the Feds.

“It’s important that the DOJ makes clear that people who are complying with valid state law do not fear federal prosecution,” Rorty said.

Rorty and others insist that was the promise made in a 2009 Justice Department memo, which essentially stated: comply with state law and the feds won’t prosecute you. But Justice Department officials are saying the exemption only applies to seriously-ill people, not commercial growers and not medical marijuana distribution outlets.

Benjamin Wagner, the US Attorney for California’s Eastern District, says the Justice Department will enforce federal law.

“We’ve met with the DEA in this regard. People from Washington have been out to California to coordinate a statewide enforcement strategy,” Wagner said.

It’s unclear whether the Feds will target the state’s most established medical marijuana operators, like Harborside Health Center in Oakland.

Medical MarijuanaOn a recent afternoon at Harborside, dozens of customers were eagerly inspecting gleaming glass cases displaying well-manicured marijuana buds. Despite a grueling audit battle with the IRS, owner Steve Deangelo says Harborside is turning over millions of dollars in sales each month. Still, he says, medical marijuana remains a risky business.

“Until federal law changes, this is not an industry, it’s a movement. And anybody who gets involved in distributing medical cannabis has to be prepared to be arrested and have a monumental challenge on your hands,” said Deangelo.

Oakland city officials say they haven’t given up on plans to license marijuana cultivation. But for his part, developer Jeff Wilcox says the Feds’ warnings have scared off people who wanted to invest in a legitimately regulated business.

“You want to try to start an industry and then you have the IRS working against you, the federal government working against you — you’ve got a real problem,” said Wilcox. “So the problem is if you don’t grow this industry what happens is that it remains a black-market industry, and it’s always going to be that way.”

Medical-marijuana supporters are calling on the Obama administration to clarify the recent warnings. Sources close to the Justice Department say Attorney General Eric Holder is planning to do just that, in a letter that will be released soon.

– Article from California Report.


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