Riding high: The number of medical marijuana outlets spikes,

January 28, 2007

Deborah Crowe, Los Angeles Business Journal

With little fanfare until this month, Los Angeles County has quietly become the country’s capital of medical marijuana.

In the last two years the number of marijuana dispensaries in the county has ballooned from a relative handful to more than 200, according to most estimates.

And in the city of Los Angeles, police said, 45 such shops opened in December alone as entrepreneurs sought to beat a proposed moratorium.

Many of them have opened in strip shopping centers, typically using such names as “compassionate caregivers” or “patient collectives” – names that seldom mention marijuana.

Even the Rev. Scott Imler, who co-authored the ballot initiative that legalized medical marijuana, thinks the industry that he inadvertently helped create has gotten out of control.

“We created this beast that frankly the state and local governments have been too slow to regulate,” Imler said. “We’re a liberal state and everyone wants to bend over backwards to be compassionate and understanding and groovy. And they get taken advantage of.”

The high-profile raid of 11 marijuana dispensaries by U.S. Drug Enforcement Administration agents on Jan. 17 highlighted the sudden industry, as well as its shaky legal foundations: The shops are legal under Proposition 215, passed by state voters in 1996, but still illegal under federal law.

“Los Angeles has had a significant growth in the number dispensaries recently, but remember that this is the second largest (metropolitan area) in the U.S.,” said William Dolphin, communications director for the Oakland-based pro-medical marijuana group Americans for Safe Access.

So far, there isn’t a good handle on the value of the economic activity that medical marijuana generates in the county. While dispensaries pay employee taxes and some collect retail sales taxes, public agency record-keeping is sketchy given the quasi-legal status of the enterprise.

A report presented to an Oakland oversight committee last fall estimates Californians consume between $870 million and $2 billion worth of medically related marijuana each year – and anywhere from a third to a half of that is likely consumed in Los Angeles County alone, given the county’s size.

The rapid growth of the industry has taken city officials, law enforcement agencies and others by surprise. Many have started to ban or at least regulate marijuana clinics more tightly.

However, the local actions have not been enough to halt the raids by the DEA officials, who categorize the dispensaries as illegal drug selling operations – despite California law.

“Granted they’re acting under the guise of legal state law, but under current federal law they’re still drug organizations,” said Sarah Pullen, spokeswoman for the Los Angeles field office of the DEA. The agency’s Jan. 17 sweep was the first time the Los Angeles office had targeted multiple clinics at the same time.

Mushrooming industry

California was the first of 10 states to pass a medical marijuana law. But no other metropolitan area has nearly as many marijuana storefronts as Los Angeles. The Bay Area, for example, has about 70.

Still, the medical marijuana industry got a slow start in California.

The state ballot initiative approved by voters in 1996 legalized marijuana for medical use. (Marijuana is said to help with nausea and stimulate appetite for cancer patients and others who are seriously ill.) Though not originally conceived in the law, cooperatives developed so that patients could cultivate, process and distribute marijuana among themselves.

However, in 2001 a West Hollywood cooperative that was organized by Imler was raided by federal authorities and shut down. He faced criminal charges and a possible prison sentence.

As that case made its way through the courts, the California Legislature in 2003 passed SB 420, which recognized the right of patients and caregivers to associate collectively to cultivate medical marijuana. Subsequent court decisions expanded that protection to retail-style dispensaries.

However, the industry remained stunted because of criminal cases such as Imler’s. But in 2005, Imler’s case was settled. He got one year’s probation.

Attorney John Duran, a councilman in West Hollywood who successfully defended Imler, said that once it was clear that Imler wouldn’t be heading to prison, local entrepreneurs were emboldened to launch their own clinics – despite the threat of federal raids.

The dispensaries were aided by the lack of specific regulations covering these businesses within many jurisdictions of Los Angeles County, particularly in the city of L.A. The county and many cities inside it scrambled to enact moratoriums to give them time to decide whether to regulate or ban the shops.

At least eight cities now have moratoriums in place, while Torrance and Pasadena in the past year have banned clinics. On Jan. 16, West Hollywood gave initial approval to an ordinance intended to lower the number of clinics in the city from six to four. L.A. County passed an ordinance that went into effect in June that regulates when and where the shops open.

In November, Los Angeles police officials began talking seriously about enacting a moratorium. That set off a scramble by many to open shops to beat any decision – and led to the 45 shops that opened in the city. In all, the city of Los Angeles has 148 retail-like medical marijuana shops or home-delivery services.

“Out of the chaos, that’s where the opportunists move in,” Duran said.

Dispensary owners who contend they work hard to run a reputable operation take issue with the opportunist label, though several declined to talk to the Business Journal for this story. However, one operator who opened a small dispensary north of downtown L.A. five months ago, said he pays sales taxes, is insured by Lloyd’s of London, and desires a good working relationship with the officers who patrol his neighborhood.

“This is new territory for us,” said the operator, who would only allow his first name, Ed, to be used in the wake of the DEA raids. “Everyone is very spooked right now. We are not drug dealers and we don’t want to be confused with that.”

Under state law, in order to receive medical marijuana, patients must get a doctor to provide a written recommendation – nicknamed scripts, although they’re technically not prescriptions. The scripts also give the recipients the right to legally grow marijuana for medical purposes.

For roughly $70 to $100, depending on the neighborhood, patients with a script can purchase one-eighth of an ounce of processed marijuana for personal use. They can roll a joint to smoke on premises if the dispensary offers a smoking lounge, or take it home. Many shops also offer pot-laced edibles for those unable or disinclined to smoke.

Prices at dispensaries, sometimes known as cannabis clubs, tend to be equivalent to or slightly higher than pot available on the street, with clinic owners touting the greater safety and cleanliness of their facilities.

Investigators contend that much of the marijuana sold by L.A. clinics comes from many of the same sources as what’s available on the street. It’s often imported from Canada and Mexico, Pullen said, in violation of California law that requires medical marijuana to be grown within the state.

A dispensary might pay $3,000 to $4,000 wholesale for a pound of marijuana then mark that amount up by as much as 100 percent, according to the DEA.

But clinic owners such as Ed consider the DEA’s contentions ludicrous, at least for clinics that care about their clients. Mexican pot is apt to be laced with allergy causing pesticides, he said, and Canadian weed tends to be grown indoors, producing a product that’s less potent and hence less effective for therapeutic purposes.

Instead, many clinics prefer to obtain their pot from small California suppliers, often patients themselves who have the legal right to grow it.

“In any case, why would you need to import marijuana when California has the best climate for growing anything you want,” Ed said.

Taking precautions

However, even some patient advocates admit larger dispensaries often turn to underground growers. The DEA also believes that clinic sales to people without scripts or under false pretenses are more widespread than the clinic community acknowledges.

Ed said he drills his staff on state law and recommended codes of conduct promoted by patient advocacy group Americans for Safe Access. Clinic staff workers must independently verify new clients, Ed said, and will fax forgeries to other clinic owners as an alert, much as retail businesses do for bad check writers.

But even Ed acknowledged that more than a few bad apples have snuck into the local clinic community in recent months. He said an increasing number of clinic operators, with support from ASA, are organizing to self-police their industry using peer pressure and other means he wouldn’t specify.



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