Feds crack down

Dispensaries around the state draw heat, from tax scares to seizure threats



HERBWISE Reversing its previous pledge to abide people's rights to legally obtain medical marijuana in California and the 14 other states that have legalized it, the Obama Administration has launched a crackdown on the industry using several different federal agencies.

During an Oct. 7 press conference in Sacramento, California's four U.S. attorneys announced their intention to go after the industry with raids on large-scale growing operations and big dispensaries and civil lawsuits targeting the assets of people involved in the cannabis business.

"We want to put to rest the notion that large marijuana businesses can shelter themselves under state law," Melinda Haag, the U.S. attorney for Northern California, based here in San Francisco, said at the press conference.

That pronouncement is just the latest in a series of federal actions against those involved with the production and distribution of California's top cash crop, an industry that the California Board of Equalization estimates to be worth about $1.3 billion in tax revenue annually. Sources in the medical marijuana business say the crackdown began quietly this summer.

Hundreds of dispensaries and other medical marijuana operations had their bank accounts shut down after the Treasury Department contacted their banks and warned them of sanctions for doing business with an industry that remains illegal under federal law. The Internal Revenue Service last month also notified many large dispensaries — including Harborside Health Center in Oakland, the largest in Northern California — that they cannot write off normal business expenses and must pay a 35 percent levy on those claims going back for three years.

Harborside's Steve DeAngelo told us that would put Harborside — or any company with high overhead costs — out of business. "This is not an effort to tax us, it's an effort to tax us out of existence," he said, noting that Harborside paid the city of Oakland $1.1 million in taxes this year. In addition, the Department of Justice recently began sending 45-day cease-and-desist letters to hundreds of dispensaries around the state, including at least two in San Francisco, warning the clubs and their landlords that the operations violate federal law and could be subject to federal laws on the seizure of assets from the drug trade.

"It's a multi-agency federal attack on patients' access to this medication," DeAngelo said. "It's going to drive sick and dying patients back out onto the street to get their medicine."

Haag claimed the state's medical marijuana laws, which California voters approved back in 1996, have been "hijacked by profiteers." Yet both local officials and people in the industry say that characterization is ridiculous, and that the federal government's new stance will destroy an important industry — one that is very professional and well-regulated in San Francisco — and send legitimate patients back into the black market.

"I think it's a step in the wrong direction and counter-intuitive to the Obama Administration's contention that he would respect state's rights," said Sup. Ross Mirkarimi, who authored groundbreaking legislation regulating San Francisco's two dozen dispensaries, a system that he said "is working well...But now the federal government is pulling the rug out from under us."

Shortly after taking office in 2009, the Obama Administration released the "Ogden memo," written by Deputy Attorney General David Ogden, stating the federal government would respect the rights of states to legalize and regulate medical marijuana. It was seen by cannabis activists as a sign that Obama was de-escalating the war on drugs, at least as it applied to marijuana.

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