LA. to Set Pot-Club Rules

November 26, 2009

John R. Emshwiller, Wall Street Journal

The city council here could vote as early as Tuesday on a set of rules for hundreds of local medical-marijuana dispensaries, amid a growing debate about whether many of those pot shops should be allowed to operate at all. California voters passed a law in 1996 that allowed a seriously ill person with a doctor's clearance to use marijuana. Another law in 2004 permitted patients and their primary caregivers to open collectives to procure and distribute marijuana to their members.

But in Los Angeles, city officials say the number of outlets -- and the freewheeling fashion in which many of them operate -- has gotten out of hand. The city now has as many as 1,000 dispensaries, several hundred of which opened in the past year. That growth has been driven in large part because the city council never set regulations on how they should operate. San Francisco, which has rules for dispensaries, has about 30.

Though the council is now trying to craft guidelines -- including possible rules on the number and location of dispensaries -- Los Angeles County District Attorney Steve Cooley contends that many of the outlets are simply illegal, drug-selling operations that are reaping huge profits, much of it in cash. He says that if the stores don't close voluntarily, he will move to have them closed and file criminal charges against their operators. "The sale of marijuana is illegal under state law," said Mr. Cooley.

Dispensary defenders argue that such sales are allowable, noting that one state agency has even put out a directive saying that legal marijuana transactions are subject to sales tax.

According to 2008 guidelines from the California attorney general, qualified users and their primary caregivers can form cooperatives or collectives to grow and supply pot to members. Those entities have to operate on a not-for-profit basis but can recoup expenses; dispensary defenders say that is where the over-the-counter sales come in. The Los Angeles city attorney's office, another critic of over-the-counter sales, says the costs have to be recouped through a mechanism such as monthly membership dues. Law-enforcement officials also say dispensary operators often don't qualify as primary caregivers.

Law enforcement officials this year have seized and destroyed a record amount of illegal marijuana grown in remote parts of public land in California: more than four million plants with a street value of as much as $16 billion. Stacey Delo reports.

Law-enforcement officials also argue that a doctor's recommendation is easy to get. They note that some physicians openly advertise for marijuana-seeking patients, with one such ad promising that "if you do not qualify for a recommendation" the $150 examination fee would be waived. There is "a corruption of a portion of the medical community," said Mr. Cooley, who said he will also seek to punish offending doctors.

While there are bad actors among dispensaries, "I believe that the vast majority are trying to operate legally," said Don Duncan of Americans for Safe Access, a marijuana advocacy organization. The lack of clear rules in Los Angeles doesn't help, he added.

Possession and sale of marijuana remain illegal under federal law. During the Bush administration, federal prosecutors here won criminal convictions against some dispensary operators.

Early this year, President Barack Obama's attorney general, Eric Holder, said federal prosecutors wouldn't go after people complying with state marijuana laws. Since then, several hundred new dispensaries filed notifications with Los Angeles city officials. Mr. Holder "was widely heard," said David Berger of the Los Angeles city attorney's office.

A Justice Department spokeswoman said nothing in Mr. Holder's remarks should have given "any encouragement to people to open illegal marijuana operations." Those found to violate federal and state marijuana laws will be prosecuted, she added.

Local law-enforcement officials say the case of Luis Godman illustrates the kind of operation they are worried about. A former real-estate agent who became a marijuana dispenser, Mr. Godman was arrested last year in an underground parking garage while purchasing more than three pounds of marijuana. Mr. Godman told officers he bought marijuana for $3,000 a pound and received the equivalent of $9,000 a pound at a roughly $20-per-gram "donation" from collective members, according to court filings.

Mr. Godman pleaded guilty to possession of marijuana with intent to sell and tax evasion related to under-reporting of what authorities calculated was hundreds of thousands of dollars of income.

The district attorney recommended a year in jail. The judge gave Mr. Godman 180 days of home confinement.

Mr. Godman's attorney, Bruce Margolin, said his client "was acting in good faith" in operating the dispensary. The home-confinement sentence, he added, shows "the court didn't think he was acting in a criminal fashion."

Arrested with Mr. Godman was Nathan Holtz, who has been charged with illegal cultivation of marijuana, theft of utility services and other crimes. In court filings, the district attorney's office linked Mr. Holtz to two houses that had been converted into indoor marijuana-growing facilities that contained more than 1,300 plants. To power pumps and grow lights, main utility lines were tapped and more than $60,000 of electricity stolen, the filings said.

Mr. Holtz has pleaded not guilty and is awaiting trial. He is a member of a number of "lawful" collectives and supplies marijuana to each, said his attorney, Bradley Brunon.

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