Growing pains

Oakland and other Bay Area cities move to regulate and tax medical marijuana cultivation

The marijuana business is booming in Oakland and other Bay Area cities, now local governments are seeking a piece of the action

The medical marijuana movement was born and raised in the Bay Area, and now the city of Oakland is poised to take the next big step forward by being the first city to explicitly allow and permit several massive cannabis cultivation facilities on industrial land, making millions of dollars in taxes in the process.

It's the latest move in a growing trend toward Bay Area cities figuring out how to regulate and tax a booming industry that could really explode if California voters approve Proposition 19 in November, which would legalize even recreational uses of marijuana and give local jurisdictions more authority to control it.

Pot growing has long been the murkiest realm within an increasingly legitimate and professional medical marijuana industry (see "Marijuana goes mainstream," 1/27/10). While Oakland, Berkeley, and San Francisco all have well-defined and regulated systems governing the 30 licensed cannabis dispensaries in those three cities, most of their growers are underground operations with no official oversight.

Public officials on both sides of the bay — who almost universally voice their support for the medical marijuana industry — say there can be problems associated with unregulated grows. Jerry-rigged wiring can pose a fire danger, and valuable crops can be targeted by criminals. Growers can be raided by police even when they have valid paperwork. And cash-strapped city governments aren't able to tax or regulate an industry that has kept on booming throughout the Great Recession.

"There is no system to regulate production," Oakland City Council member Rebecca Kaplan, who has authored cultivation regulations, along with co-sponsor Council member Larry Reid. Although the city may lack resources to enforce new requirements on growers, Kaplan believes growers will sign up voluntarily: "Every time we've created a permitting system, people have sought to use it. They want to be above board."

The measure would permit growing facilities of more than 100,000 square feet, charging them each a $5,000 permit fee and $211,000 "regulatory fee," as well as a gross receipts tax to be determined. The Oakland City Council approved the measure July 20 after Kaplan agreed to have staff also create a permit system for smaller growers, with both regulatory systems slated to take effect Jan. 1, 2011.  Kaplan has also proposed a November ballot measure to increase the current gross receipts tax on cannabis-related businesses from 1.8 percent now to up to as high as 11.2 percent, which the council is set to consider July 22.

Kaplan's cultivation proposal initially generated a backlash from some small growers and Harborside Health Center, Oakland's largest dispensary, because of its focus on creating mega-facilities that could monopolize the market and hurt the small growers who have been at the heart of the medical marijuana movement.

"All we're asking for is a level playing field and a fair opportunity to compete with these factories," attorney James Anthony, who represents Harborside and its network of growers, told the Guardian. "As medical cannabis comes into the light, it's still capitalism out here in the world."

Oakland developer and business person Jeff Wilcox, who is new to the marijuana industry, has been aggressively pushing to create a massive cannabis growing and manufacturing facility on his 7.4-acre warehouse complex near the Oakland Coliseum, covering 172,000 square feet over four buildings.