Medical pot stores' profits questioned

July 26, 2007

Dan Abendschein, Whittier Daily News (CA)

The recent busts of medical marijuana dispensaries have raised questions about the revenue the operations collect.

Four dispensaries last week were accused of operating as "super-sized retail drug-dealing centers," turning tremendous profits and accepting questionable doctor's recommendations.

The dispensaries were investigated by the Drug Enforcement Administration, which can charge them with violating federal drug laws, regardless of whether or not they make a profit.

However, the agency claims dispensaries it went after last week were operating as for-profit operations, which may not be permitted by state laws that set guidelines for growing, possessing, and distributing medical marijuana.

Two of the busted dispensaries, the "Yellow House" and West Hollywood Compassionate Caregivers, are located in Los Angeles. The other two are in Corona, in Riverside County, and Morro Bay on the Central Coast.

The DEA, which carried out the investigation, claims that the two owners of the "Compassionate Caregivers" chain, which has seven dispensaries in California, amassed $95 million in profit, and owned luxury cars and real estate in Costa Rica.

The DEA said that based on complaints of young, seemingly healthy people buying pot at the busted dispensaries, the operators are "no different than any other drug trafficker."

Some in the medical marijuana community spoke out against operators that act more like big retail stores than medical collectives.

"Some of these dispensaries have kids with prescriptions from shady doctors lining up outside the store," said the man who operates the Holistic Co-op in Los Angeles. "That part of the medical marijuana community is a joke."

Riley, who preferred not to have his last name in print, said that he only helped genuinely sick patients, and always called his patient's doctors to verify they were legitimate.

But others rallied to the defense of the dispensaries.

"A business grossing the kind of numbers released by the DEA is not making that much money," said Chris Fusco of the Americans for Safe Access organization. "Both the federal and state governments need to give clear guidelines so there is no confusion for dispensary operators."

Under federal law, the DEA can arrest any dispensary owners for selling marijuana. State law, which permits medical marijuana, is unclear.

The 2003 medical marijuana laws do not "authorize any individual or group to cultivate or distribute marijuana for profit."

"Though the law is clear that profit is not authorized, it is not explicitly declared illegal by state law either," said Bruce Margolin, an attorney with the California branch of the National Organization for the Reform of Marijuana Laws.

Margolin noted that in a state court case, the People vs. Urziceanu, lawyers successfully defended a dispensary where people were asked for suggested donations in return for medical marijuana, and asked to sign forms saying that the recipient understood the donation was meant to "ensure continued operation" of the dispensary and that it "in no way constitutes commercial promotion."

However, Margolin added that a similar case, People vs. Mench, where the court ruled in favor of the defendant, is now being appealed by prosecutors.

The profitability of the medical marijuana business has also come to the attention of the Board of Equalization, which administers state taxes.

In February, the board sent out a memo telling dispensaries that any commercial transactions would be subject to sales tax, regardless of whether the sale was allowed by federal law or not.

"We sent a memo making it clear to dispensaries that they could file taxes without telling us what they were selling," Anita Gore, a spokesperson at the Board of Equalization.

Gore said that researchers with the organization looked at the number of dispensaries and potential sales, and saw that the state was missing out on a decent source of revenue.

Chris Fusco says that without more clear state regulation, many operators find the best strategy is to run the dispensary as a not-for-profit business, or even file for non-profit status.

In either case, says Fusco, a dispensary would set clear staff salaries and reinvest any profit back into services for the patients of the collective.

One operator of a West San Fernando Valley-based dispensary said that he keeps careful books showing he is not running his operation for profit, pays taxes, and makes sure his customers are genuine.

"There is always a small group of people who abuse the system or act like profiteers, so it is to our benefit when more people use the model we use here," said the operator, who preferred not to be identified by name.

He said he was part of a group of about 70 dispensaries under a group named the Greater Los Angeles Caregiver's Alliance that runs as a nonprofit.

"Our goal is (to) set up a model that is even more stringent than state or city regulations would be," said the operator.

dan.abendschein@sgvn.com

(626) 962-8811, Ext. 2105



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