October 28, 2010
Adam Jensen, Tahoe Daily TribuneThere's no doubt marijuana is big business in California. The state's 8.6 million-pound marijuana annual harvest is worth about $14 billion, according to an Oct. 18 article in the Santa Rosa Press Democrat.
And the vast majority of the cash crop is outside the bounds of California's medical marijuana laws.
The state's medical marijuana industry represents a $1 billion market, according to estimates from Cal NORML, a group advocating the reform of California's marijuana laws.
For some South Shore residents who've been hit by the effects of a global recession, growing a plant can yield more than $2,000 a pound for its processed buds. It has become a reasonable option to supplement stagnant or declining incomes.
But the profit motive puts individuals, as well as three medical marijuana collectives in South Lake Tahoe on shaky legal ground, according to law enforcement officials.
Source of income in a struggling economy
Exactly how much marijuana is grown at the South Shore, legal and illegal, is difficult to estimate.
The 504 pounds of processed marijuana the South Lake El Dorado Narcotics Enforcement Team seized this year is the most in its 22-year history, said SLEDNET task force commander Jeff Catchings.
And the number doesn't come close to the actual amount of marijuana grown here, Catchings said.
“I wouldn't even call this a dent,” Catchings said. “It's that prevalent up here.”
The majority of marijuana is grown for profit, putting its cultivation outside of the protection of California's medical marijuana laws, Catchings said.
“People will flat out tell you that ‘I'm growing it because I need the money,'” Catchings said.
But others see the benefits in a homegrown industry helping sustain a city that faces a population and economic decline.
During an August City Council meeting resident Scott Dmytrin said medical marijuana cultivation has propped up the local economy. He called medical marijuana cultivation a “savior” for many at the South Shore.
According to one man at the meeting, medical marijuana has become a way for some to make mortgage payments during a time when unemployment as hovered around 12 percent in El Dorado County and risen to more than 16 percent in South Lake Tahoe.
While Catchings said he understood the difficulty of making a living at the South Shore, law enforcement agencies aren't given the liberty of taking the economy into consideration when enforcing the law.
Medical marijuana growers who receive profits for their work are squarely in the illicit market, Catchings said.
“Your a drug dealer, whether you're doing it to feed your kids or not,” Catchings said.
Still, the difficulty of prosecuting medical marijuana laws full of gray areas has caused the task force to focus on large grows that may be using multiple homes and are out of compliance with California law.
Three medical marijuana collectives have also been accused of illegally profiting off the state's liberal medical marijuana laws, charges the owners have denied.
Catchings said SLEDNET does not have current investigations into the collectives, but said they have contacted federal authorities to look into how much money is going through the operations, a concern also expressed by Assistant City Manager Rick Angelocci during a meeting of a committee formed to develop medical marijuana cultivation ordinances for South Lake Tahoe.
“The concern I have is there seems to be a lot of money flowing in,” Angelocci said. “If this is a cooperate or non-profit, it seems to be out of control.”
In Jerry Brown's August 2008 guidelines for the lawful operation of medical marijuana collectives, the Attorney General notes that medical marijuana dispensaries should be operated as nonprofit organizations.
“Nothing in Proposition 215 or the (Medical Marijuana Program) authorizes collectives, cooperatives, or individuals to profit from the sale or distribution of marijuana,” Brown wrote.
But that doesn't mean cash transactions for medical marijuana are illegal according to Americans for Safe Access, a medical marijuana advocacy group.
“Operating in a not-for-profit manner does not mean that patients and caregivers who own or operate a collective can not be paid a reasonable wage for their services,” the group wrote in a response to Brown's guidelines. “Patients operating not-for-profit collectives should be aware, however, that the perception of excessive profits is what motivates this provision of the guidelines. Paying reasonable salaries is acceptable, but other indications of excessive profits should be avoided — bonuses, dividends, conspicuous spending, etc.”
Each of the owners of three collectives in South Lake Tahoe said the medical marijuana collectives in South Lake Tahoe are not as profitable as people think.
Gino DiMatteo, the owner of City of Angels 2 collective, said he just recently started taking a paycheck from the business.
“I don't stand here 15 hours a day for free,” DiMatteo said, pointing to weekly free meals, as well as free marijuana he provides to collective members who are unable to pay as evidence that profit is not his motivating factor. He also employs eight people with full medical benefits, DiMatteo said.
A disclaimer on the collective's website indicates money exchanged is solely for the cost of producing medical marijuana and not for the purchase of the medicine itself.
“Any donations requested are strictly for compensation of time, nutrients, electricity costs and other factors involved in the process of producing and delivering medical grade marijuana and not toward the sale or purchase of the medicine itself,” according to the disclaimer.
But Catchings said investigation shows thousands of dollars in profits are flowing through the collectives on a daily basis.
City of Angels 2 takes in between $3,000 and $5,000 a day, Catchings said. The numbers are disputed by DiMatteo.
“Everybody calls us a crook, but never that we're paying taxes,” DiMatteo said.
When asked how much he had paid in taxes, DiMatteo said “a lot.”
He declined to provide specifics.
“If they don't think it's legitimate, they can come and arrest me and let a judge sort it out,” DiMatteo said.
How much the collectives have paid the city in taxes is unknown. Confidentiality laws protect the release of a businesses' gross receipts and other tax information, said city Accounting Supervisor Maryanne Brand.
Cody Bass, Tahoe Wellness Collective owner, questioned the perceived profit margins of the collectives.
He said the collective grossed $550,000 in 2009, but has never provided him a paycheck. He said a collective he operates in Berkeley allows him to keep the Tahoe collective open.
Matt Triglia, a co-owner of Patient to Patient Collective, also said the perception of profits is unfounded.
During the last quarter he said his collective had $21,200 in the bank and wrote a check to the state of California for $17,500 in taxes, Triglia said. Federal taxes caused the collective to lose money, Triglia said. His insurance business, as well as his fire and water damage restoration business pay the bills for the collective, Triglia said.
“Right now, I'm not making any profit.”
Plummeting marijuana prices have cut into any potential revenue, Triglia said.
A pound of marijuana costs between $2,200 and $2,400, according to estimates from Catchings.
Triglia said prices of marijuana in Oakland have dropped as low as $800 due to California's abundant supply.
Attorney's fees stemming from the city's proposed regulation, and possible banning of the dispensaries, have cost $40,000, Triglia said.
He said he doesn't expect the collective to come out of the red until after three years of operation, adding he eventually hopes the collective will provide him with a $50,000 salary in line with the directors of other nonprofit organizations.
“Everyone thinks we're making a lot of money, but we're not,” he said.